Following a 10.4% slump from RM2498 (24 May high) to RM2238 (19 & 21 June low), FCPO staged a 3.4% bounce to end at RM2314 yesterday, driven by weaker RM and China’s threat to restrict US soybean imports. However, stiff resistances are near RM2370-2380 levels, premised on expectations of higher inventory amid seasonal uptrend in palm production in 2H, weakness in related edible oils and lower restocking activities (post Ramadhan).

FCPO prices plunged 7.4% YTD amid weak fundamentals. A confluence of negative headwinds (i.e. rising inventory amid production surplus in a seasonally strong June-Sep period; the resumption of 5% export tax effective May 2018 and weakness in rival oil related prices) witnessed FCPO tumbled 7.4% YTD. Sentiment was also dampened by lower restocking activities after Ramadhan festive season and lacklustre exports markets.

FCPO needs to stage a swift rebound above RM2370 to arrest current downtrend. Following a RM184 slump (7.4%) from RM2498, FCPO rebounded from RM2238 to end at RM2314 yesterday. We see further rebound from steeply oversold positions towards RM2337 (38.2% FR) and RM2368 (50% FR) territory before reaching stiff resistance at RM2400 psychological levels. On the flip side, a breakdown below RM2300 could a resumption of downtrend again towards RM2283 (20h SMA) and RM2270 (50h SMA) zones.

Source: Hong Leong Investment Bank Research - 28 June 2018