Despite good export reports, Malaysian palm oil futures fell 2.4 per cent for the week on Friday as stronger ringgit hindered buying interest from foreign investors and refiners.
Futures crude palm oil (FCPO) August 2014 contracted with its benchmark settling at 2,517 which was down 63 points from 2,580, last Friday.
Trading volume increased to 171,620 contracts from 117,248 contracts last week.
However, open interest based on Thursday decreased to 179,553 contracts from 186,524 contracts last Thursday.
Intertek Testing Services (ITS) reported on last Tuesday an increase of 18.5 per cent for the first 20 days of April to 856,128 tonnes compared to March’s first 20 days at 722,170 tonnes.
Following ITS, Société Générale de Surveillance (SGS) also reported an increase in export for the first 20 days at 854,791 tonnes compared to March’s first 20 days at 717,842 tonnes.
Despite the robust export figures, FCPO was mostly down throughout the week due to ringgit.
Spot ringgit strengthened for the week to 3.2105 where it hit the lowest at 3.2015 on Thursday.
Ringgit strengthened 0.7 per cent for the week on stronger-than-expected first quarter economic growth and a wider current account surplus.
A trader said that there was a rumour circulating that ringgit may strengthen to as low as 3.17 and it is one of the many reasons investors and traders were the seller in FCPO for fund liquidation purposes.
The strong ringgit was one of the many reasons investors choose to hold back their buying interest as stronger ringgit will discourage demand from overseas where it will be more costly to purchase palm products which is ringgit-denominated.
According to Malaysian Palm Oil Association (MPOA), Malaysia’s palm oil output is expected to edge up to 19.4 million tonnes this year from 19.22 million tonnes in 2013 and added that should there be an El Nino coming in the next two to three months, the damage will only likely to be felt next year.
The rise till 19.4 million tonnes from the 19.22 million tonnes produced in 2013 only a rise of 0.9 percent is slightly below a forecast for production of 19.52 million tonnes in 2014 by industry regulator, the Malaysian Palm Oil Board (MPOB).
Makhdzir Mardan, chief executive of the MPOA, also warned that the recent drought has caused a spear formation on young shoots, which is an indication that leaves are not fully grown.
MPOA also warned that the two-month drought earlier this year could mean palm fruit growth would diminish at the end of the year.
Based on chart, price fell below and test the 2,520 to 2,485 level where the lowest it fell is 2,492.
Based on our observation, price is fighting to stay above the 2,500 level in this week.
We drew the horizontal line at 2,485 level which is a major support level for FCPO.
Should weakness in price persists, there is a possibility it may violate the support level and try to cover the gap between Oct 18, 2013 and Oct 21, 2013 (2,404 to 2,418).
For price to rebound, traders may need to focus on 2,575 and 2,630 in the coming weeks.
Meanwhile, we draw the resistance line in the chart in order to anticipate for a potential rebound.
Current EMA 200 day level pegged at 2,583 to 2,584.
Key Support levels are pegged at 2,492-85, 2,450, and 2,420 to 2,410.
Key Resistance levels are pegged at 2,575, 2,630, and 2,700.
Major fundamental news this coming week
ITS and SGS report on May 25 (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.
Source : TheBorneoPost