CPO Futures : Narrow-Range Trading Likely

OBSERVATIONS: The currency factor provided the main push behind price fillips in world commodity markets overall last week, including the Kuala Lumpur CPO futures market. The actively-traded September 2010 contract, on a third forward month basis, fluctuated within a narrow RM2,367-RM2,420 a tonne, closing last Friday at RM2,400 for a RM40 or 1.69 per cent gain over the week. The main reason for the price fillip was US dollar weakness against the euro, which encouraged speculation that the US export trade in soyabeans and soyaoil will benefit from higher foreign demand, mainly from China. That had a knock-on effect on the local CPO futures market, which otherwise would have been grasping at straws for leads. As a result of US dollar weakness, crude oil for August delivery jumped 6.07 per cent to US$78.26 a barrel and gold for August delivery 0.02 per cent to US$1,258.30 an ounce. And US soyabean oil for July delivery tacked on 102 points or 2.76 per cent to close last week at 37.92 US cents a pound.
The latest export estimates was a disappointment, considering that this market has in the past month been used to and expects news of strong export demand. Export monitors Societe Generale de Surveillance’s and Intertek Agri Services’ June 1-15 export estimates averaged 604,623 tonnes, down 1,580 tonnes from that for the first half of May. By sharp contrast, the June 1-10 export estimates were a whopping 69,000 tonnes or 19.18 per cent above that for the similar period in May. Conclusion: This market’s short-term trading range is now between RM2,380 and RM2,420 and, barring the appearance of new leads and market-inciting catalysts, should continue to fluctuate within that price band. 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

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