Malaysian palm oil futures headed lower this week and marked its lowest level since August 8, 2016 on Thursday ahead of the packed market data week due to expectations of weaker demand after Ramadan, rising of production and also the strengthening of ringgit.
The benchmark crude palm oil futures (FCPO) contract down for fourth consecutive weeks to RM2,453, it had lost 1.72 per cent on weekly basis, 43 ringgit lower than RM2,496 on last Friday.
The total trading volume during Monday to Thursday was 168,445 contracts, 17.58 per cent lower than 204,373 contracts traded during the same period in the previous week.
Open interest over Monday to Thursday up 2.54 per cent to 853,541 contracts from 832,412 contracts during the same period in the previous week.
Data from industry regulator Malaysia Palm Oil Board (MPOB) will be released on coming Tuesday, according to a Reuters poll, the palm oil stockpiles in Malaysia is likely dipped in May from the month before, driven by robust appetite in key buyers such as India and Pakistan ahead of Islam’s holy month of Ramadan.
The end-stock is expected to drop 1.3 per cent to 1.58 million tonnes in May the weakest May level since 2010.
However, the output in May is seen gaining 5.5 per cent to 1.63 million tonnes. It would mark the largest level since October but the smallest monthly growth in the year.
Moreover, the climb would come below the historical May average monthly rise of 5.7 per cent over past five years, and also below output levels in May 2015 ahead of an El Nino weather pattern.
The export of Malaysian palm in May is forecast to hike 13.6 per cent from April to their highest level in nine months at 1.46 million tonnes as overseas buyers stocked up ahead of the start of Ramadan in late May, when many Muslims break day-long fasts with communal feasting. Yet, export in June is expected to taper off as weaker demand after Ramadan.
Spot ringgit strengthened 0.34 per cent to 4.2670 against the US dollar from 4.2815 on last Friday, and year-to-date it has gained 4.85 per cent from 4.4845.
Appreciation of ringgit is due to slump in the dollar to a seven-month low earlier in the week driven by a rift in the Middle East, the European Central Bank meeting, the British election and also the political turmoil in the United States created doubts that President Donald Trump could enact economic stimulus.
On Monday, Malaysian palm oil futures rose slightly at the close of trade, recovering from the previous session’s losses, as gains in stronger-performing soyoil boosted sentiment.
On Tuesday, Malaysian palm oil futures recovered from earlier losses to end flat, helped by a stronger performance in oilseed soy and lower than expected inventory forecasts.
On Wednesday, Malaysian palm oil futures saw a second session of declines in four, slipping to a near two month low on forecasts for rising output and falling export demand.
On Thursday, Malaysian palm oil futures fell in a second straight session of losses as forecasts of rising output and declining export demand weighed on the market.
On Friday, Malaysian palm oil futures rose, in line for their first gain in four sessions, tracking strength in rival oilseed soy.
Technical Analysis
Based on the FCPO daily chart, the market broke out from its sideways trading this week.
It had fallen below the previous low of 2,450 to 2,436 on Thursday before it paring some losses and closed above 2,450 on Friday.
On Monday, Malaysian palm oil futures was traded in sideways, the benchmark contract gained 16 points at opening bell but lost two points to close at 2,494.
On Tuesday, Malaysian palm oil futures continued its sideways trading, the benchmark contract recovered from its earlier losses to end the day at 2,497, 3 points higher than previous closing price.
On Wednesday, Malaysian palm oil futures ended its week-long sideways trading as the benchmark contract lost 40 points to close at 2,454, the lowest level for nearly a year.
On Thursday, Malaysian palm oil futures extended its losses, with the benchmark contract fell to the lowest level since last August, by losing eight points to close at 2,446.
On Friday, Malaysian palm oil futures trimmed earlier gains during the late trade to end with a small advance, with the benchmark contract up seven to close at 2,453.
Next week, the market is likely to move towards to the lower Bollinger Band and test the next psychological price level of 2400, failing to break this level will lead the market to retrace.
Resistance lines will be positioned at 2,513 and 2,550, whereas support lines will be positioned at 2,400 and 2,353, these levels will be observed next week.
Major fundamental news this coming week
ITS, SGS and MPOB reports will be released on June 13.
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.