Vertis – Despite the reduced auction supply, last week was the third in a row when the benchmark carbon contract slipped lower.

The EUA Dec17 started the week flat to previous Friday’s settlement price. After a strong auction result, the price retested Friday’s maximum at 5.10 euro, but turned sharply lower in the afternoon. For some minutes it seemed that the 20DMA at 4.95 euro was able to keep the price from falling further, but in the last hour of trading the price plummeted to a daily minimum at 4.91 euro and was not able to recover by the time the market closed. The contract finished the day 2.4% lower, at 4.92 euro, just 1 cent above the daily minimum. The traded volume of 10.6 million was slightly higher than the June average of 9.5 million. The sell-off pushed the price to the lower edge of the increasing trend channel that has been established in the second half of May.

The EUA Dec17 rose for the first time in three days on Tuesday as auction supply dried and the energy mix was strong. Although the price fell below the 20DMA during the day, it managed to recover by the end of trading. The price finished the day at 5.01 euro, a gain of 1.8%.

As all financial markets were waiting for the next rate hike by the US Federal Reserve, the carbon price moved in a narrow range of 8 cents most of Wednesday. After the publication of the US crude oil inventory data, however, the price of Brent turned 3% lower and the carbon price followed suit. The EUA Dec17 hit a daily minimum at 4.90 euro, and was not able to climb back above the 5.00 euro level by the end of the day. The close below the 5 euro level and the 20DMA, and the bearish engulfing from the last two days were warning signals that the carbon price might fall further.

Most of the market participants were on holiday on Thursday, which had an impact on the traded range and volume of EUAs. The price moved in a narrow range and not even 7 million allowances traded in the benchmark contract. The price closed with a marginal gain of 2 cents as the positive effect of the lack of auctions was mainly cancelled by the weak energy mix.

The EUA Dec17 opened with a 2 cents gap down on Friday and still tried to retest the 5 euro level (also the 20DMA) in the morning. Fears about the increasing auction supply, however, pushed the price down continuously in the afternoon. The benchmark contract finished the week at 4.88 euro, a daily and weekly minimum and a level not seen since 7 June.

The increasing auction supply started to weigh on the price last week already and the negative effect might continue this week as well.

The deteriorating German clean dark spread is another factor having a negative impact on carbon prices.

The factors mentioned above pushed the price of the EUA Dec17 below the 5.00 euro level which is currently also the 20DMA and the 30DMA at 4.85 euro is quite easy to reach. The next support is the lower Bollinger band at 4.77 euro, followed by a Fibonacci level at 4.70 euro and a local low from March at 4.58 euro.

On the other hand, the RSI is in neutral territory and the MACD still in the positive territory. Should the price be able to consolidate or recover, the first resistance is the 5.00 euro level, followed by the 200DMA at 5.12 euro.

Source: Bloomberg, ICE