Technical analysis for FCPO / FCPO Daily Chart Source: BursaStation Professional

Malaysian palm oil futures fell 2.56 per cent for the week on Friday, following weak comparative vegetable oils although traders expected prices to rebound soon due to high seasonal demand. Futures crude palm oil (FCPO) settled at 2,592 which was down 68 points from 2,660 last Friday. Despite the lack of one day trading due to Labour Day, volume still managed to increase to 135,636 contracts from 134,193 contracts totalled last week. Moreover, open interest based on Thursday increased to 188,981 contracts from 187,970 contracts last Thursday.

For the first 30 days of April, Cargo Intertek Testing Services (ITS) reported below than expected 1.3 percent rise to 1.221 million tonnes compared to the first 31 days of March at 1.205 million tonnes. Cargo Société Générale de Surveillance (SGS) reported 1.7 per cent increase in export figures at 1.221 million tonnes compare to first 31 days of March at 1.2 million tonnes. Spot ringgit strengthened slightly for the week to 3.2655 even though it did strengthen until 3.2535. Normally, stronger ringgit will discourage demand from overseas as it will be more costly to purchase palm products.

Price managed to climb as high as 2,685 during the week but due to lack of upward momentum from comparative oil coupled with strengthening in ringgit, palm fell mostly for the week to as low as 2,558. US soybean futures fell 3.4 per cent on Thursday which was their biggest daily decline since September 16 as investors locked in profits after a five-day rally which pushed prices to a nine-and-half month high. Moreover, concerns over China’s growth sparked fear in investors as demand from China is weakening. Bad economic data and with US Federal Reserve trimming their quantitative easing measure, also forced investors to liquidate their position. Normally, when the Federal Reserve reduces their quantitative easing measure, the US dollar may strengthen and this may cause commodities to be more expensive to purchase.

However, many investors and traders believed that demand will rise following the celebration of Ramadhan and Eid al-Fitr (Hari Raya) in June and July, respectively. They will now focus on the first 10 days of export data to gauge the demand. Meanwhile, Indonesia is considering changes in the country’s palm oil export tax system as they are looking to further promote its downstream industries. Panggah Susanto who is the director general of Agricultural industries said that he is looking at offering tax breaks to higher value-added palm products as palm refining capacity is set to jump almost 50 per cent to 45 million tonnes in 2014.

Technical view 

From the technical analysis perspective, price broke below our triangle range which we drew last week and it violated both our EMA 100 day moving average and 200 day moving average which were our last week’s key support levels. After price broke below the triangle range we drew last week, price tested the EMA 100 day moving average line and eventually gapped down below the EMA 200 day moving average line even though price managed to rebound and stay above the line and closed at 2,592. We are currently observing whether price is strong enough to stay above the EMA 200 day line in the coming trading days.

Based on our analysis, price may rebound in the following weeks to cover the gap left behind especially when many traders believe demand is kicking in the month of May 2014. However, due to strong selling action throughout the week, we now focus our next support target to 2,520 to 2,485 level (drawn in the chart).

Current EMA 100 day level is at 2,639. Current EMA 200 day level is at 2,587. Key support levels are pegged at 2,570, 2,525 and 2,485. Key resistance levels are pegged at 2,600-2,615, 2,630 and 2,665.

Major fundamental news this coming week

MPOB, ITS and SGS report on May 12 (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.