Multiple rejections of technical support give market more bullish look

Weekly outlook: bullish

Dec25 YTD average: €72.79

Indicative Dec25 EUA price: €78.40

Indic. Spot price: €78.08

Chart 1: Dec25 EUA prices

Analysis

EUAs last week were unwilling to push back into the €70-75 range in spite of a solid attempt on Wednesday. The move lower came as data on speculative buying and selling of EUAs showed a slight drop in investment funds’ EUA holdings. Failure to make a move lower saw buyers emerge, who drove the market higher to prices we haven’t seen since February. 

Indeed, EUA prices steadily climbed to the current €79.30 levels. This may be due to two main factors: coming market tightening and a better economic outlook. 

Buyers would look to approximately €78.43 as nearest support - if we were to move under that early in the week, we might see better prices. €80 is a first psychological level to look for, then €82.02 and then €84.50 are possible targets for prices- highs set back in February. It looks like the bulls are in charge now. 

Tightening EUA market: in contrast to the last two years, 2026 and 2027 are expected to see a supply shortage due to a set of EU policies in place. Specifically, the RePowerEU policy frontloaded allowances into the auction supply until it would achieve revenues for €20 billion. Until now, 75% of the revenue goal was achieved and the time limit for the policy is August 2026. This means that the EUA market will see a decrease in supply after that moment.

Three banks (Bank of America, Citibank, Macquarie) last week revised their EUA forecasts higher which may have added to buying interest on the part of speculators.

Chart 2: EUA auction supply of past years and forecast

On top of this, the Linear Reduction Factor (LRF) increased, with EUA supply now dropping by 4.3% a year in 2024, vs. the previous 2.2%. In 2028 it will reach 4.4%, making EUA supply even tighter. From 2026, the introduction of CBAM will also bring along the phasing-out of free allocations. 

Improved economic situation - but US led volatility remains: Global Purchase Managers Index is at a 14-month high, taking growth at its highest since June 2024. 

However, official decisions on US tariffs could have an impact. The next update is scheduled for the 5th of November, when the US Supreme Court will review the appeal on tariffs by the government. 

Chart 3: ICE Commitment of traders net positions

On the gas and power side, Europe’s gas storagehas reached 82.8% of its capacity, meaning that it is well on track to exceed winter targets. At the same time, the Asian gas market is providing enough supply to address its internal demand, limiting its impact on TTF prices. 

While TTF gas prices remain a fundamental driver of EUA prices, the correlation was disrupted during the recent period.

Chart 3: TTF Gas prices (black) compared to EUA prices (blue), decoupling between the two.

Another bullish factor is given by the start of heating season which will increase European emissions. LaNiña is expected to contribute to a colder winter in Europe. Fossil fuels consumption rose last week, where coal increased by 25.8%, lignite by 59.3% and gas by 10.5%.

Weather in coming weeks is however expected to be relatively mild compared with seasonal averages, which could provide some relief and a correction lower for EUAs.

As has also previously been mentioned, some energy producers seem to have been behind in their hedging of power generation - so some pent up demand may be reappearing, especially as prices move higher and threaten profits.

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