EUA Dec17: Power prices and auction result have still the biggest impact

Vertis – The EUA Dec17 jumped to a new 5-month high last week and gained 8% as the announcement of the French nuclear safety authority about checking reactor components lifted French and  German power prices to multi-year highs.

The week started with a volatile trading. The EUA Dec17 ran from 5.32 euro to 5.46 euro in the first five minutes of trading on Monday. And when everybody thought that the contract has set the daily range already, the price jumped further to hit 5.53 euro, a level not seen since mid-July. For the rest of the day the price consolidated around 5.50 euro. The benchmark contract finished the day at 5.52 euro, a gain of 2.4%. The traded volume increased above 10 million, for the first time in August, but remained above 10 million for the rest of the week.

The lack of auction lifted the price of the benchmark carbon contract to a new 5-month high at 5.64 euro on Tuesday. The former resistance at 5.47 euro on the other hand proved a good support during the day. As the energy mix was not supportive at all, the EUA Dec17 was not able to maintain its gains and slipped back to the level it closed on Monday and finished the day with a marginal gain of 1 cent (+0.2% d/d) leaving a bearish shooting star candle stick.

The EUA Dec17 had a spectacular rally on Wednesday helped by a strong auction and higher German power prices. The price increased continuously during the day to hit 5.83 euro, a level not seen since March 2017. As the news about the review of the French nuclear reactors prevailed, the contract was able to keep almost all its gains by the end of the day and closed 4.9% above Tuesday’s settlement price.

The EUA Dec17 had another volatile start to the day on Thursday. After opening with a 3 cents gap up in the morning, the price plummeted quickly to a daily minimum at 5.70 euro. In less than 30 minutes the price then jumped to a daily (and 5-month) maximum at 5.96 euro, but consolidated in a range between 5.76 and 5.88 euro in the rest of the day. The contract finished at 5.81 euro, up 1 cent (+0.02%) from Wednesday’s settlement. The traded volume reached 12 million, above the August average, but below Wednesday’s 21 million. After the huge white candle on Wednesday, the price left a doji candle on Thursday that indicated hesitation of the market participants if the rally can continue. The RSI jumped above 70 and the price traded above the upper Bollinger band. Both these signals confirmed the possibility of a correction.

On Friday, the price was not able to hit any new high and the daily range of 15 cents was also narrower than the previous days. The EUA Dec17 was only able to post a marginal gain of 1 cent (+0.2%).

By the end of last week the price got heavily overbought. The relative strength index ended the week at 73 (textbooks on technical analysis agree that relative strength index values above 70 suggest that the instrument is overbought) and the price of the benchmark carbon contract closed at the upper Bollinger band (at 5.82 euro).

Also the positive effect of the news about the review of the French nuclear power plants vanished somewhat as in the beginning only documentation will be checked and the authority did not order the closure of the plants.

Market participants will keep an eye on further news about the French nuclears and on power prices (both in France and Germany).

The second most important factor impacting carbon prices will be auction results this week. In five auctions some 10.8 million allowances will be offered, 20.6% more than last week. Next Friday, 1 September however auction volumes will get back to normal and market participants might start pricing this in already.

All in all, we expect the price of the EUA Dec17 to consolidate between 5.50 and 6.00 euro this week.

Source: Bloomberg


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