EU Carbon May Rise to 7.42 Euros on Hammer: Technical Analysis

European Union carbon permits may rise to test 7.42 euros ($9.72) a metric ton after last week’s trading created a bullish hammer pattern on the weekly chart, said OTC Europe LLP.

Allowances for December, the industry benchmark, may reach that level after sustained trading above 6.86 euros, Brett Genus, a technical analyst and broker at OTC in London, said today by phone.

“Overall, the week gave strong bullish signals,” he said. The hammer shape on a candlestick chart, formed by a short body at the top of a lower wick, suggests the market was probably in the process of forming a bottom and may reverse, he said.

Permits fell 1.5 percent today to 6.71 euros on the ICE Futures Europe exchange in London as of 3:19 p.m. local time, taking their loss in the past year to 62 percent. They were down as much as 4 percent earlier today. Fundamentals are also influencing the carbon market as EU lawmakers consider responding to record-low prices reached Jan. 4, Genus said.

Daily candlestick charts showed a bullish-engulfing formation on April 4 and April 5, he said. Carbon didn’t trade on April 6 or April 9 because of the Easter holidays. The engulfing candle also highlights the potential for a change in investor sentiment, he said.

In an engulfing pattern, the high price and the low price of a security on a given day are both higher and lower than the top and bottom of the intraday range on the preceding trading day, with the closing price rising or falling in the opposite direction of the previous day’s move.

In addition, there was a bullish-harami-reversal pattern on April 2 and April 3, he said. A harami pattern is formed if the range between a security’s opening and closing prices falls within the equivalent range from the preceding day. The name, which is derived from the Japanese word for pregnancy, comes about because the body of the second day’s candle would fit within that created the day before.

“The picture looks rosy,” Genus said.

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