Malaysian palm oil futures on the Bursa Malaysia Derivatives ended lower on Monday, after the country decided to impose export taxes next month which fuelled worries that price-sensitive buyers would switch to other oils. The decision made traders jittery that the additional tax could further curb demand which is already weak owing to oversupply. Cargo surveyor Intertek Testing Services said exports of Malaysian palm oil products for the first half of March fell 3.4 per cent compared to February 1-15, as India and Europe cut back purchases. However, some support is seen from a decision by Indonesia to raise its biodiesel blend to 15 per cent from 10 as early as next week, aimed at boosting use of palm-based biodiesel. Also a weakening ringgit is seen supporting attempts by the market to drive prices lower in BMD.

CPO active month June futures moved in line with our expectations. As mentioned in the previous update, prices are once again looking vulnerable for a drop towards MYR 2,215/tonne levels or even lower in the short-term towards 2,145-55. This happens to be a critical level for the trend to change to bearish once again, being a rising trendline support point. No change in view. Till this support holds in the bigger picture, we will be hopeful of a rise in the coming sessions. Near-term supports are at MYR 2,165/tonne followed by 2,145-50 levels.

Favoured view expects prices to grind higher gradually initially towards resistances at MYR 2,245-50 levels with a chance of even extending higher towards 2,275/85 levels. However, if prices test the crucial support at MYR 2,145-50 and a failure to hold there could result in loss of confidence and the trend could once again change to bearish. Such a fall could revive bearish hopes of a retest of recent lows at MYR 1,900/tonne.

As mentioned earlier, a downtrend again could be confirmed on a close below MYR 2,175 levels. This once again puts the spot light on the MYR 1,700/tonne mark, which we anticipated earlier. We are now tracking a final leg of an impulse in a declining trend with potential targets near 1,850 or even lower to 1,700 levels. Ideally, the next leg of a larger up move could potentially begin from this area.

RSI is in the neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD have gone below the zero line of the indicator hinting at a bearish reversal again. Only crossover again above the zero line could hint at a resumption of the bullish trend.

Therefore, look for palm oil futures to test the support levels and move up again.

Supports are at MYR 2,165, 2,145 and 2,085. Resistances are at MYR 2,245, 2,285 and 2,325.

The author is the Director of Commtrendz Research. There is risk of loss in trading.

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