Malaysian palm oil futures were pressured lower on Friday to 1,930, on concerns over the effect of record supplies in other edible rival oils.
FCPO benchmark November 2014 contracts settled at 1,930 which was down 69 points or 3.58 per cent from 1,999 last Friday.
Trading volume rose to 224,668 contracts from 154,640 contracts totalled last Thursday. Open interest based on Thursday rose to 1.011 million contracts from 989,463 contracts last Thursday.
Cargo surveyor, ITS reported that exports of Malaysia palm oil products for the first 25 days of August dropped by 15.3 per cent to 986,931 compared to 1.165 million during first 25 days of July. Demand from the US, China and the EU continued to decrease, while the rest of Asia still had a steady demand.
Another cargo surveyor, SGS report (August 25) showed that Malaysia’s palm oil export dropped 11.3 per cent to 956,092 for the first 25 days of August compared to 1.078 million during the first 25 days of July.Both reports showed decreasing exports for the first 25 days of August, and this could lead to stocks increasing in August.
If stocks are oversupplied, price could go lower. Spot ringgit weakened on Friday to 3.15, reaching a week high at 3.141. Overall, the ringgit continued to appreciate against the US dollar, the second highest gainer within Asian countries, due to positive local economic data coupled with a strong monetary policy. This could lead to an increase in the benchmark interest rate, which has the potential of attracting foreign investors, according to Reuters.
Continuing geo-political unrest in Eastern Europe is making investors uncertain with investing in emerging Asian markets.
But the fighting could end soon as the Russian and Ukrainian president has begun peace talks. The ringgit could be supported by new ECB monetary measures, which is vital as the eurozone has begun to stagnate. This could draw more capital inflows, according to Reuters. The dollar strengthened, reaching a one-year high on Tuesday, caused by rising speculation that the Federal Reserve will raise interest rates by next year.
Geopolitical tensions eased as Israel and Palestinian militants agreed a long-term ceasefire.
Investors are wary if it will hold. The US Department of Agriculture (USDA) reported on Monday, that soybean prices has continued to fall on rising anticipation in the US will yield a record crop this year. CBOT soybean November contracts (SX4) price declined to their lowest level in four years.
According to Reuters, soybean futures are being pressured from a solid early harvest.
Technical Analysis
According to the FCPO weekly chart, prices ranged between 1,920 and 2,050. A long negative candle formed due to the potential record rival edible oil supplies from the US, causing the bearish trend continues.
When analysing the FCPO daily chart, on Monday, the price tested the 1,950 region, reaching the lowest price in five years as investors anticipate the impact of record levels of supplies of rival edible oils, paired with weakening export levels as foreign demand slows.
However, the price rebounded and broke the resistance line at 2,020. The bullish momentum could not be maintained; declining on low demand.
On Wednesday, the price edged up as US soybean price rose from a four year low, testing resistance line 2,050, but could not break and rebounded due to fears with regards to record supply of rival edible oils, coupled with a strong ringgit.
On Friday, the bearish sentiment continued, as vegetable oil supply rose with lower demand, the price broke 1,950.
Next week, price is likely to test 1,920 as the bearish momentum remains strong. Investors are waiting for the price to bottom and rebound, as the price continues into oversold territory.
On the FCPO daily chart, the lower band of the bollinger band is continuing to expand, supporting the bearish trend, the price could break below 1,900 next week. Resistance lines will be placed at 1,950, and 1,990, while support lines will be located at 1,920 and 1,890. These lines will be observed next week.
Major fundamental news this coming week
Merdeka Day on September 1, 2014 (Monday). SGS and ITS reports on September 2, 2014 (Tuesday).
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.