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Malaysian palm oil futures on the Bursa Malaysia Derivatives were slightly higher on Monday ahead of the official MPOB data due on Tuesday on stocks, production and exports.
Markets are looking towards Malaysia’s output and end-May stocks data expected on Tuesday to assess supply-side risk amid a seasonal increase in production as demand has been below expectation in the last few weeks.
The Malaysian ringgit has also been stronger as the country prepares to liberalise the financial sector by easing rating requirements and removing barriers for foreign investment.
The currency could further dent sentiment for crude palm oil, as the feedstock becomes more expensive for importers.
Crude palm oil active month August futures fell lower as expected. As mentioned in the previous update, highly oversold conditions warn us of an upward retracement in the coming days.
But the pullback could at the most be a profit-taking rally and the decline could resume and test levels close top MYR 2,375/tonne or even lower to 2,348-50 being a wave equality target level.
While 2,375 holds, chances exist for a move up to 2,485/2,500 levels in the coming sessions.
However, a direct fall below 2,375 could signal weakness, which could see prices grinding lower towards 2,325 or even lower. Favoured view expects prices to hold supports and rise higher towards 2,485 initially and then towards MYR 2,550/tonne levels.
As mentioned earlier, prices met an intermediate wave target at 2,135/tonne and corrective decline to 2,345-50 levels, followed by a sharp third wave move to 2,575-2,600 materialised.
Price structures suggest a possible third wave move ending at MYR 2,690/tonne and a corrective, fourth wave with targets at 2,450 now.
The fifth wave possibly ended at MYR 2,898/tonne and a corrective A-B-C in progress with an equality target at MYR 2,350 levels now.
RSI is in the neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD are still below the zero line of the indicator hinting at a bearish reversal.
Only a crossover again above the zero line could at resumption in the bullish trend.
Therefore, look for palm oil futures to consolidate and rise. Supports are at MYR 2,375, 2,345 and 2,300.
Resistances are at MYR 2,455, 2,485 and 2,550.
The author is the Director of Commtrendz Research. There is risk of loss in trading
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