Technical analysis for FCPO / FCPO Daily Chart Source: BursaStation Professional
Malaysian palm oil futures ended 0.6 per cent lower for the week.
However, on Friday, market closed on a higher note as it followed gains in overseas soy oil markets. Despite closing higher on Friday, a stronger ringgit and investor cautiousness ahead of industry data hindered the rise which also kept futures crude palm oil (FCPO) prices in a narrow range throughout the week.
FCPO settled at 2,577 which was down 15 points from 2,592 last Friday. V
olume increased to 161,299 contracts from 135,636 contracts totalled last week.
Moreover, open interest based on Thursday decreased to 178,028 contracts from 188,981 contracts last Thursday. Price was trading in a very narrow range between the 2,550 and 2,580 levels.
Most traders avoided taking any big steps before the release of Malaysian Palm Oil Board’s (MPOB) report on May 12. Market players have also avoided risky bets ahead of an industry report from the MPOB that will detail April’s palm oil stocks, output and exports in the second-largest grower.
On Thursday, Reuters poll expected that Malaysian palm oil stocks would likely inch up to a three-month high of 1.7 million tonnes in April while production was seen at 1.53 million tonnes, up 2.4 per cent.
Malaysian exports of palm products are expected to recover slightly at 1.29 million tonnes, up 3.8 per cent from 1.24 million tonnes in March.
Meanwhile, fears that an El Nino weather pattern will heavily disrupt Southeast Asian palm output this year have begun to diminish as there are no signs of an impact in top producers, so far.
A trader believed that the current weather provided plenty of rain in the evening, which may be beneficial for production.
Indonesia also believed that the El Nino is unlikely to curb output until 2015. It also expects to produce more than 28 million tonnes of palm oil this year.
Oil palm trees normally react to extreme weather such as El Nino which can induce drought in the region while flooding other parts of the world only several months later.
On the other hand, traders stated that Indonesia, the world’s most populous Muslim-majority nation, may curb its overseas sales of palm oil to meet its own domestic consumption needs ahead of the festive-season, hence; this might force foreign buyers to focus on Malaysia.
Demand for palm oil which is used as cooking oil and ingredient in edible foodstuffs ranging from margarine, biscuits and condensed milk, is favoured to pick up this month as buyers may need to replenish edible oil stocks ahead of the Muslim festival of Eid al-Fitr celebrated this year in July.
Spot ringgit strengthened significantly for the week to 3.227. The Malaysia Central Bank signalled on Thursday that it might tighten its monetary policy soon to counter a ‘continued build-up financial imbalances’.
Normally, stronger ringgit will discourage demand from overseas as it will be more costly to purchase palm products which is ringgit-denominated.
Technical view
From a technical analysis perspective, price traded in a narrow range throughout the week albeit trading below the EMA 200 line.
From what we’ve observed, both buyers and sellers equally dominate the range mentioned in this commentary probably due to the fact that most traders are not willing to take any further steps until credible information guide their trade.
The gap above was almost covered although it only reached 2,609. Currently, we are still focusing on our support target between the 2,520 and 2,485 level (drawn in the chart with light green and dark green).
From what we expect, price might move violently either way during the week, due to the fact that as long as the sideway or narrow range breaks either way, price might move strongly.
We peg current EMA 200 day level at 2,587. Our key support levels are at 2,570, 2,550, 2,520 and 2,485. Our key resistance levels are pegged at 2,610, 2,630 and 2,665.
Major fundamental news
MPOB, ITS and SGS report on May 12 (Monday).
Oriental Pacific Futures (OPF) is a Trading Participant and Clearing Participant of Bursa Malaysia Derivatives. You may reach us at www.opf.com.my Disclaimer: This article is written for general information only. The writers, publishers and OPF will not be held liable for any damage or trading losses that result from the use of this article.