EU carbon allowances are likely to take a breather soon following their recent rally to 2.5-year highs, though trading could remain volatile, French investment bank Societe Generale said Thursday, adding that it had left its price forecasts unchanged.

Front-year EUA futures hit €8.12 earlier on Thursday, the highest since Nov. 2012, after breaking through several technical resistance levels over the past two weeks including €7.65 – a level that had capped prices since late May.

“EUAs have surpassed a crucial resistance level at €7.65. However, the indicator will soon meet another resistance level … which suggests that the up move will most likely pause soon and could remain choppy in nature,” analysts at SocGen wrote in a note to clients.

They said that prices remain confined within an upward sloping trading channel, the lower and upper bands of which they currently pegged at €7.16 and €8.75 respectively.

“We cannot rule out a consolidation phase once the €8.37/8.75 levels are achieved.”

The bank still expects front-year EUA prices to end the year at €8.32, some 3% above current levels, before climbing to €8.49 by the end of 2016, and to €9.64 by the end of 2020.

SocGen noted that it had not identified any sustained changes in EU carbon’s underlying fundamentals nor any policy-related news to support the recent rise, other than the European Commission’s publication of its post-2020 EU ETS reform plans on July 15, which it said was only “the first step in a foreseeably long legislative process”.

“So, we believe the move to be the result of speculative trading amid reduced volumes due to the summer season,” the analysts added.

“Therefore, we remain cautious under the current circumstances: Ideally, we would like to see EUA prices confirm and sustain the highs … of today at the weekly close level and eventually at the monthly level.”

By Mike Szabo – mike@carbon-pulse.com