Malaysian palm oil futures edged lower on Friday to 1,999, reaching a five year low due to an oversupply of other edible oilseeds including soybean oil coupled with a strong ringgit.
Futures Crude Palm Oil (FCPO) benchmark November 2014 contract settled at 1,999 which was down 94 points or 4.7 per cent from 2,093 last Friday.
Open interest based on Thursday increased to 989,463 contracts from 975,461 contracts last Thursday.
Intertek Testing Services (ITS) reported that exports of Malaysia palm oil products for the first 20 days of August decreased by 5.39 per cent to 822,026 compared with 868,843 during first 20 days of July, the lowest since October 2009. Imports for China and the European Union (EU) fell, while India continues to have a strong level of imports.
Another cargo surveyor, Societe Generale de Surveillance (SGS) report (August 20, 2014) showed that Malaysia’s palm oil export dropped 8.3 per cent to 792,817 for the first 20 days of August compared with 864,258 during the first 20 days of July.
Spot ringgit weakened on Friday to 3.16, after reaching a 10-month high last week due to increasing
expectations for the Federal Reserve to raise rates sooner than expected as the US economy continues to recover, especially their labour market, which strengthened the dollar. However geopolitical tensions escalated in Eastern Europe and the Middle East.
The Malaysian economy expanded more than expected in the second quarter, reported last week, which could cause the central bank to intervene by raising interest rates.
The US Department of Agriculture (USDA) reported that soybean conditions in the US remains steady. However, dryness across several key soybean producing states could harm the output and quality in weather conditions remain the same until the end of this year.
Technical view
Based on the daily chart, the week started at a slow pace with the price moving within a tight range. Investors were waiting to verify the direction of the market, whether prices would bottom and a potential reversal at 2,090 or if the bearish trend would continue into oversold territory.
A long negative candle formed on the weekly chart as the price broke the support lines at 2,090 and 2,050, as the price persisted into oversold region.
Since the price closed below 2,000, the next support levels would be placed at 1,990, and 1,950, while the resistance levels would be positioned at 2,020, and 2,050, these lines will be observed next week.
Major fundamental news this coming week
SGS and ITS reports on August 25, 2014 (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.