A bear market rally, or the start of a new bull run?

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Estimated reading time ~ 13 mins

A gain of 40% since the late February lows more than meets the technical definition of a bull market (that would require a mere 20% increase), but yet despite the strong rebound in the EU carbon price, it’s not yet clear whether its just part of a broader and deeper bear market.

The EUA price has cleared its 23.6% Fibonacci retracement level (€63.92) and its 38.2% retracement level (€71.86). At the end of last week it also touched a long-term trend line that’s been in place for over 12 months, since the EU carbon market peaked. The €75 per tonne mark has been approached several times over the past couple of weeks only to fall away. If it does clear that level, in what appears to be a key psychological barrier, the next level to watch out for is the 50% retracement level (€78.89).

Nevertheless, there are several important factors that indicate the recent rebound in carbon prices may not be as sustainable as it first appears. In short, the EUA price may need to correct lower before market participants can really focus their attention on an EUA supply-demand imbalance that favours much higher prices later this decade (see Short covering brings carbon market bulls out of hiding).

In this article we focus on recent developments in fossil fuel generation, Europe’s increasing exposure to the volatile LNG market, check the foundations of Germany’s industrial recovery, manufacturers ability and inclination to hedge their forward carbon risk, and finally the political support underpinning the EU’s ‘Currency of Decarbonisation’!