When markets are down, correlations are up

In a tormented market climate the EUA plunges below 12 euros, as a consequence of pessimistic news upon the economic growth and of the downward pressure of the equity markets. The level of correlation between the equities and EUA prices have reached the highest level over the past year. Thus it underlines the role of technical selling and proprietary trading in the EUA price formation. Thus the unrest around EU financial institutions has a contagious effect towards the carbon market. The turmoil is far of its end as a new wave of rating downgrades is expected which could amplify the scope of the whirlpool in the margin call technical mechanisms with further losses on both equities and commodities markets.

Technically the carbon prices are below both the 250 days and the 50 days moving averages, which shows that the EUA is bounded in a low cluster. On the one hand an upward exit from this stage could appear in the foreseeable future if and only if markets start to consolidate. On the other hand how low could the EUA go? Excepting local effects, 11 euros could be the next support level, given the persistence of various market issues.

Forecast (€) EUA CER
1 week 11.75 8.25
Q3 12.00 8.50
2011 14.00 15,00
2012 18.00 16.50
2013  23.00 20.00
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