Malaysian palm oil futures fell to its lowest for the week on Friday as investors liquidated positions coupled with weak soy markets.
Futures Crude Palm Oil (FCPO) benchmark for September 2014 contracts settled at 2,346 which was down 56 points or 2.33 per cent from 2,402 last Friday.
Trading volume increased to 233,970 contracts from 201,927 contracts totalled last week.
However, open interest based on Thursday decreased to 211,892 contracts from 215,052 contracts last Thursday.
On Thursday, the Malaysian Palm Oil Board (MPOB) reported production decreased by 5.26 per cent to 1.57 million tonnes which was lower than expectation of 1.65 million tonnes.
Stocks decreased by 10.03 per cent to 1.657 million tonnes which was also lower than expectation of 1.8 million tonnes.
Meanwhile, export increased by 5.28 per cent to 1.48 million tonnes which was higher than expectation of 1.45 tonnes.
On the same day, Intertek Testing Services (ITS) reported an increase of 14.1 per cent for the first 10 days of July at 445,968 tonnes compared to June’s first 10 days at 390,729 tonnes.
Société Générale de Surveillance (SGS) also reported an increase of 18.7 per cent to 442,640 tonnes for the first 10 days of July compared to last month’s at 372,944 tonnes.
Both positive export reports and MPOB report were the biggest reasons why market was up significantly during Thursday’s evening session.
Spot ringgit strengthened slightly for the week to 3.184 compared to last week at 3.188, although it did appreciate significantly to as low as 3.1635 on Thursday.
Ringgit strengthened significantly during the week as Malaysia’s central bank was expected to raise its key interest rate to 3.25 per cent at a policy meeting on Thursday.
After market closed on Thursday, the Central Bank did raise it within expectation.
However, ringgit weakened back to 3.18 level as most emerging Asian currencies were weaker on Friday as investors flocked US dollars due to fears about the potential fallout from financial troubles at a family-owned holding companies behind Portugal’s largest-listed bank.
Normally, stronger ringgit will discourage foreign buyers to purchase palm products as it only boosts small profit margins.
FCPO prices earlier rebounded on Thursday due to positive supply and demand fundamental data.
However, price was subsequently pressured as traders chose to cut losses and liquidate their positions. One of the many reasons was due to anticipated of bumper US soybean crop.
Moreover, disappointing biodiesel policy implementation too had pressure palm oil.
However, the prospects of weak palm oil output in the coming months and recovery in demand especially from the Northern Hemisphere such as US, Europe and China due to warmer weather, may support price for the time being.
Technical view
Based on the chart, price was pressured throughout the week to close at its lowest at 2,346.
As we can see, the negative candle on Friday overwhelmed the positive candle on Thursday which signified that persistent weaknesses may still follow through to the coming week.
Currently, we drew the horizontal line whereby we believe price may fall to that level to cover the gap it left behind between October 7 to 8, 2013.
Should it break below the line, we observe a solid support at 2,265.
Meanwhile, the same as last week, we are still observing the EMA 100 and EMA 200 lines.
The EMA 100 had crossed below the EMA 200 line; which to many it is called ‘the death cross’ which can be a ‘sell sign’.
We peg our current EMA 60 day, EMA 100 day, and EMA 200 day levels at 2,486, 2,523, and 2,537. Key support levels are at 2,330, 2,300 and 2,265 while key resistance levels are at 2,395, 2,455 and 2,515-20.
Major fundamental news this coming week
ITS and SGS report on July 16 (Wednesday).
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.