Malaysian palm oil futures on Bursa Malaysia Derivatives exchange ended higher on Friday on demand optimism in the coming months as the peak production season comes to an end. Also, expectations that in July and August production will be smaller when workers will observe Ramadan supported prices. A weaker dollar and rising energy prices continue to perk up prices. Energy prices look set to cross $100/bbl on a weaker dollar and the crisis in the Euro zone receding gradually. Palm's broad discount to its rival soya oil also continues to underpin sentiment.

CPO futures are moving perfectly in line with our expectations. As mentioned in the previous update prices steadfastly bounced from 3,020-30 Malaysian ringgit (MYR) a tonne. Prices have the potential to rise higher towards 3,185 MYR/tonne followed by 3,245-50 MYR/tonne levels in the coming sessions, also being a Fibonacci retracement zone as seen in the chart above. Further upside to 3,285-3,300 MYR/tonne also looks possible. Any declines to 3,120 MYR/tonne or even lower to 3,085 MYR/tonne could hold attempts to decline now, also being a Fibonacci retracement zone as seen in the chart above. Unexpected fall below 3,055 MYR/tonne could dent our bullish expectations.

We believe the impulse that began from 1,427 MYR/tonne, which hit 4,486 MYR/tonne ended and a prolonged corrective move has possibly ended at 1,335 MYR/tonne. In the big picture, a new impulse began from 1,335 MYR/tonne and the third wave with a projected objective of 3,900 MYR/tonne has been met. Unlike in the previous update, we counted the fall towards 3,133 MYR/tonne as an end of wave “A” now and not the wave “C” as anticipated earlier. A corrective wave “B” has met one potential target near 3,465 MYR/tonne. A wave “C” kind of a decline looks likely with potential to test even 2,600 MYR/tonne in the bigger picture. RSI is in neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD are still below the zero line of the indicator again indicating bearishness to be intact. Therefore, look for palm oil futures to test the support levels and then rebound.

Supports are at MYR 3,120, 3,105 and 3,075. Resistances are at MYR 3,165, 3,185 and 3245.

(The author is the Director of Commtrendz Research and also in the advisory panel of Multi Commodity Exchange of India Ltd (MCX). The views expressed in this column are his own and not that of MCX. This analysis is based on the historical price movements and there is risk of loss in trading. He can be reached at gnanasekar_thiagarajan@yahoo.com.)

(This article was published on July 23, 2011)
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