Tracking recovery in soybean prices and weak ringgit, coupled with positive July MPOB data, FCPO recovered 15.4% from RM1916 (10 July) to RM2212 yesterday. African Swine Flu outbreak in China and Indonesia government’s recent move to raise its biodiesel mandate to B30 by 2020 and B50 by 2021 also lifted the sentiment. Despite the positive catalysts, further strong gains are likely to be capped by potential rise in stockpiles in coming months (which higher production cycle may commence in July and peaks around Sep/Oct) as well as toppish technicals. Formidable resistances are RM2250-2290 whilst supports fall on RM2140-2190 zones.

Bullish downtrend channel breakout to drive prices higher towards RM2250- 2290 zones. FCPO’s mid to long term outlook remains bright following recent bullish 200D SMA breakout and downtrend channel violation (weekly chart)the after multiple key SMAs supports breakdown. A decisive breakout above RM2235 (5 Apr high) will spur prices higher towards RM2253 (78.6% FR) and RM2292 (100W SMA) before reaching our LT objective at RM2344 (YTD high). Key supports are pegged at RM2190 (10H SMA), RM2180 (38.2% FR) and RM2140 (30H SMA) levels.

Source: Hong Leong Investment Bank Research - 14 Aug 2019