UPDATED: German power front year bull-run tests new resistance – technical indicators

The German Calendar Year 2017 wholesale electricity contract on Tuesday made another unsuccessful run at breaching a resistance level of €26.88/MWh, technical analysis reference points indicate.

This appeared to have brought to an end a six-session bull-run on the contract which has pulled it up to prices last seen in mid-August, when a failed attempt to break the same resistance gave way to a slide that ended at the start of week 37.

Should it break the €26.88/MWh cap in coming days, this would open the way to highs last seen in July, when the product reached an end-of-trend high of €28.80/MWh.

On the other hand, failure to break the resistance can reverse the trend, with the previous resistance points becoming potential support levels.

On Tuesday, ICIS assessed the product at €26.525/MWh, after it came off an intra-day high early in the morning of €26.86/MWh, a hair’s breadth from the technical resistance.

This could either leave the door open for the product to have another run at breaking through this level on Wednesday if the market decides to lift offers, or give way to a slide as was seen in mid-August if there is less appetite to buy.

Fibonacci retracements

From a fundamental point of view, market participants pointed to the appreciation of coal prices, which are a major driver for trading the German front year because of the high share of coal-fired generation in the country’s electricity mix, as driving the bull-run since early September.

According to traders reached by ICIS, market participants’ focus will stay on coal movements in the coming days when looking at fundamentals.

When looking at technical indicators, the current upwards trend was spurred by a rebound from a floor price marked by a popular technical analysis tool – the fibonacci retracement lines (see box).

Traders exchanging the German Cal ’17 Baseload contract over the counter (OTC) had traded the product below the €25.03/MWh support level on Monday 12 September. However, the market subsequently reacted, and the product closed up session on session. The intra-day movement on Monday took the form of a so-called “hammer” candlestick, a trend-reversal technical signal (see graph).

This followed another reversal candlestick – a “rickshaw man” candlestick (see box) – at the end of the most liquid session on the front year since the end of April.

The Monday 12 September rebound from a support line last approached at the end of May was then substantiated by the following sessions.

RSI and MACD

The front year gained altitude and broke through two fibonacci resistance price levels at the end of week 37, at €25.69/MWh and €26.06/MWh.

The contract had pierced the €26.06/MWh barrier previously in less liquid sessions at the end of August, but – unlike then – other technical analysis indicators point to the gains being more solid, with the contract now looking at the €26.88/MWh threshold.

Two technical analysis tools corroborate the upward movement.

The relative strength index (RSI) climbed above 50.0 between Wednesday and Thursday – a bullish sign – after the index had stalled at around 30.0 since the start of September – a sign of bearishness in the market.

At the same time, the moving average convergence-divergence (MACD) method also pointed to the resurfacing of some bullish momentum, as the MACD line crossed the signal line on Thursday (see box).

The last time the signal line was crossed going upward was on 14 July, little before the Cal ’17 peaked at €28.80/MWh. riccardo.patrian@icis.com