Malaysia’s palm oil futures (FCPO) were down on Friday, a fall from three consecutive sessions of gains, weighed down by concerns of rising production and technical selling despite the weaker ringgit and strong soybean oil seen during previous sessions.
FCPO settled lower at 2,223, an increase of 2.44 per cent from last Friday’s closing price at 2,170, a total of 53 points.
There was a change of average trading volume from 47,724 contracts until 36,704 contracts from last Monday to Thursday, a 30.02 per cent surge.
However, there was a 47.31 per cent increase to 254,061 contracts from 133,872 contracts in the daily average open interest from the previous week as compared with trading days from Monday to Thursday.
AmSpec reported export data surged 49.22 per cent September, a totalled of 1.6 million MT, from 1.072 million MT shipped during August.
Societe Generale de Surveillance (SGS) also reported a hike of 54.56 per cent in exports of Malaysian palm oil products in September to 1.629 million tonnes from 1.054 million tonnes shipped during August.
FCPO extended losses on Monday, with a closing price of 2,156 due to concerns on the rising production.
Despite September’s export data from AmSpec and SGS which showed robust growth in exports, it was unable to outweighed concerns regarding the rising production as foretold by industry analyst Mistry which pegged Malaysia’s peak end-stocks at three to 3.3 million tonnes for the year and also estimated Indonesia’s inventories, world biggest palm oil producer to close at five million tonnes.
Moreover, the surge of production number is expected as palm oil production in Malaysia, the world’s second-largest palm producer, typically rises in the third and fourth quarters of the year in line with the seasonal trend.
The following trading day FCPO reversed losses and scored a three consecutive gains on Tuesday, Wednesday as well as Thursday, underpinned by strong US soybean oil as well as weakness in ringgit.
Notably on the sharp gains, a 38 points increase, happened on Wednesday, which was buoyed by strong rising crude oil prices, which closed at US$76.41, as the Organisation of the Petroleum Exporting Countries (OPEC) disregarded US President Donald Trump’s request to raise oil output to curb rising oil prices.
However, FCPO failed to maintain the rally on Friday and settled lower at 2,223, curbed by concerns toward rising production as well as technical selling. Normally, a rise of palm oil production will cause the prices to fall.
Spot ringgit depreciated 0.12 per cent to 4.1455 against the US dollar, compared with 4.1405 on Friday.
The dollar edged towards a 10-week high on Friday before the release of US’ monthly jobs data that investors hope will shed light on how much longer the Fed’s aggressive rate-hiking cycle will continue.
After a three session gains, FCPO seems unlikely to maintain its upward momentum to break above 2,240. FCPO ended today’s session with an inverted hammer, which usually indicates that a change of trend is imminent.
However, this candle alone does not usually determine the change of trend and the following candle on Monday will confirm the trend’s changing pattern.
Moreover, there is also a resistance level formed around RSI 60 and RSI has yet to retest the resistance level around RSI 60.
Currently, the market showed that FCPO may fail to rally and retest the barrier set at 2,240 and it may retrace towards second support level at 2,200 to gain upward momentum and prepare for second attempt to retest resistance level at 2,240.
In the coming week, FCPO might continue to trade downward, a support level of 2,200 is set and if FCPO fail to break below the first support level, it may trade towards the first resistance level at 2,240.
Resistance lines will be positioned at 2,240 and 2,260, whereas support lines will be at 2,200, and 2,190. These levels will be observed during the week ahead.
Major fundamental news this coming week
MPOB, AmSpec and SGS reports will be released on October 10, 2018 (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.