EUA Dec17: High auction volume will weigh on the price

Vertis – As the seasonality charts of the EUA price suggested, the last week of August brought a correction to the market. Although in a monthly comparison the price gained 13.6%, in a weekly comparison it lost 4.1%.

After the previous week’s rally, some late coming buyers lifted the EUA Dec17 to 6.20 euro Monday morning, a level not seen since 2 January. The price was stable during the day as it received positive signals from the broad energy mix and was also supported by the lack of EUA auctions. In the last hour of trading market participants started to take profit and the price fell to a daily minimum of 6.08 euro, filling the gap from the morning. The traded volume of 2.5 million was the lowest in 2017. The price closed at 6.10 euro, just one cent above last Friday’s settlement.

The EUA Dec17 had a strong start to the day on Tuesday. It opened with a 3 cents gap up, and jumped to a daily maximum of 6.18 euro in the first hour of trading already. After the weak auction, the price turned down and slipped continuously to reach a daily minimum at 5.96 euro. Below 6 euro, however, buyers stepped in and lifted the price back to a closing price of 6.04 euro, which still represented a daily decline of 1.0%.

Although the benchmark contract opened with a 5 cents gap down at 5.99 euro on Wednesday, this remained the daily minimum as the price increased continuously during the day. The daily maximum was reached at 6.12 euro, but by the end of the day the price returned towards 6 euro and closed with a marginal loss of 1 cent (-0.2% d/d). The traded volume reached 10.6 million, the highest in the last four trading days.

On Thursday, the EUA Dec17 opened 1 cent below Wednesday’s settlement price and was slipping lower step by step during the day. In the afternoon, the price hit a daily minimum at 5.87 euro (just one cent above the Marubozu line), but it was able to climb back higher to finish at 5.94 euro (-1.5% d/d). The traded volume of 8 million was below the 10.6 million of Wednesday and the August average of 9.7 million.

The price remained relatively stable on Friday and traded between 5.90 and 6 euro, but the last hour of trading brought sellers to the market who pushed the price to a daily minimum at 5.84 euro (so the support at the Marubozu line was broken). The price settled at its daily (and weekly) minimum providing a negative signal for this week’s start. In addition, the MACD slipped below the signal curve on Friday.

This week might have a sleepy start due to the US holidays on Monday (Labour Day).

In the carbon market, traders will watch closely the auction results to see if the market is able to absorb 21.5 million allowances, 93% more than last week.

It will be also important to see, if the price of German power continues its movement downwards, because this might weigh on the carbon price as well.

On the other hand, the if the correction in the price of coal continues, it can counterbalance the negative effect of lower power prices (at least partially) and provide some support to the EUA price. The spreads could be also affected by major movements in the EUR / USD, especially after the rate setting meeting and the press conference of the European Central Bank Thursday afternoon.

All in all, we expect the decline in the EUA price to continue this week, and the price to move between 5.50 and 6.00 euro.

Source: Bloomberg and ICE

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