EUAs dipped on Monday to give back a small part of last week’s 7% gain that saw a 33-month high extended three times, as analysts warned that the units looked overbought.
The Dec-15 EUA settled down 8 cents at €8.25 on ICE after fading in the final 90 minutes of the session, which traded in a €8.23-8.35 range on thin turnover of less than 5 million.
Last week’s 54-cent rise to as high as €8.36 came on the back of half the usual auction supply due to a scaled-back holiday sales calendar, which extends for a further two weeks.
The gains left the benchmark contract’s Relative Strength Index (RSI) to 69, just one point shy of the 70 mark that indicates whether a contract is overbought.
At 0900 GMT, the EU’s auction of 1.459 million spot EUAs cleared one cent above market at €8.26 and over four times oversubscribed, the highest in 10 days. Prices in the secondary market rose 3 cents in the minutes after the result.
Most carbon auctions clear slightly below secondary market levels, providing an incentive for financial institutions to participate, though last week two of the four sales cleared above market.
The addition of a UK sale on Wednesday bumps the weekly total to 7.54 million, from just under 6 million.
“This low volume might support the EUA price this week,” said Bernadette Papp, an analyst at brokers Vertis, in a weekly post.
RSI AT LIMIT
Last week’s upwards move beat analyst expectations, and several warned of a correction this week.
Vertis’ Papp added that the RSI, the five previous consecutive sessions of prices closing higher and other technical signals all suggest the EUA had become overbought on Friday, when the RSI hit 71.
“In the case of a correction, the first strong support level is around €8 with the 20 day moving average at €8.02,” she said.
Energy Aspects said low volume in both the primary and secondary market – with turnover at around 60% of 2015 daily averages – had helped push prices higher last week.
“While we generally expect prices to continue to transition upwards over the coming months, slightly higher auction volumes, and some opportunities for profit taking holds out the likelihood that prices could drop back over the coming week. But we now expect prices to trade in an €8.00-8.50 range for the rest of August,” they said in a weekly report.
Thomson Reuters Point Carbon analysts predicted carbon would trade in a €8.15-€8.45 range this week, while Bloomberg New Energy Finance (BNEF) analysts were more bearish and said carbon would end the week in the €8.00-8.20 range.
“Any signs of price weakness could see profit-taking as investors lock-in gains, which would amplify any price declines,” BNEF said in a weekly report.
Below are the auctions this week, distance to market, bid-to-cover ratios:
8/17/2015 EU 1,459,000 +€0.01 v market, btc 4.12
8/18/2015 EU 1,459,000
8/19/2015 UK 1,564,500
8/20/2015 EU 1,459,000
8/21/2015 DE 1,599,000
By Ben Garside – firstname.lastname@example.org