CPO Futures Rebound May Be Shortlived

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

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