OBSERVATIONS: China saved world commodity markets from tumbling
to eight-month lows as per the Reuters Jeffries CRB Index. Palm oil
was saved from falling to fresh three-month lows. But that bit of
respite may not last.
World commodity markets nowadays are more
tied to the fate of the euro than to any other factor. And palm oil is
no exception.
Commodity markets overall tumbled in early trade
last week in the wake of news that the euro had fallen to fresh
four-year lows of around US$1.21 to a euro. That was before Chinese
authorities came to the rescue of the euro – by denying alarming forex
market talk and media reports that China’s central bank would start
dumping euros and eurobonds from its US$2.5 trillion foreign currency
reserves.
The Chinese announcement not only raised the euro-US
dollar exchange rate above US$1.23, it also lifted some of the gloom in
world stock and commodity markets.
Crude oil for July delivery fell at first to a low of US$69.21 a barrel
before staging a late rally to touch a high of US$75.72, closing the
week at US$73.97on the heels of the Chinese euro-support news. And palm
oil for August delivery on the Kuala Lumpur CPO futures market, which
had earlier dropped to an intra-week low of RM2,436, recovered some to
settle last Thursday at RM2,457 a tonne, but still was down RM34 or 1.36
per cent over the week (last Friday was a festive holiday).
The
euro- dollar exchange rate is now an important determinant of price
direction and fluctuations in major commodity markets. That’s because
the European Union is a huge market for commodities and the strength –
or weakness – of the euro affects the purchasing power of the 14-nation
eurozone community for commodities.
The European Union is the
largest customer for palm oil, after China and the Indian sub-continent.
Whether
the better export performance of palm oil thus far this month had an
effect on this market’s late rally last week is moot.
Societe
Generale de Surveillance and Intertek Agri Services’ May 1-25 export
estimates averaged 1.039 million tonnes, up some 58,000 tonnes or 6.04
per cent compared with that for the similar period in April.
Conclusion:
This market is still technically a bear.
This market could rise
further in in early trade this week, on follow- through buying interest
and the better tone in world commodity markets.
But so long as
the RM2,520 immediate overhead resistance level is not decisively
breached, it is likely that any price uptick from here will fizzle out
HOW
TO USE THE CHARTS AND INDICATORS
n THE BAR AND
VOLUME CHART: This is the daily high, low and settlement prices of
the most actively traded basis month of the crude palm oil futures
contract. Basically, rising prices accompanied by rising volumes would
indicate a bull market.
n THE MOMENTUM INDEX: This line
plots the short/medium-term direction of the market and may be
interpreted as follows:
(a) The market is in an upward direction
when the line closes above the neutral straight line and is in a
downward direction when the reverse is the case.
(b) A loss in the
momentum of the line (divergence) when prices are still heading up or
down normally indicates that the market could expect a technical
correction or a reversal in the near future.
n THE RELATIVE
STRENGTH INDEX: This indicator is most useful when plotted in
conjunction with a daily bar chart and may be interpreted as follows:
(a) Overbought and oversold positions are indicated when the index
goes above or below the upper and lower dotted lines.
(b) Support
and resistance often show up clearly before becoming apparent on the bar
chart.
(c) Divergence between the index and price action on the
chart is a very strong indication that a market turning point is
imminent.
The subject expressed above is based purely on
technical analysis and opinions of the writer. It is not a solicitation
to buy or sell.
Source : Business Times by W.Q.Mun
