Malaysian palm oil futures on Bursa Malaysia Derivatives Exchange edged lower on Friday, as the ringgit continued to appreciate to a three-month high following the US Federal Reserve's surprise decision to postpone any reduction in its bond-buying programme. Market participants liquidated positions ahead of vegoil forecasts by leading analysts in Mumbai over the weekend.

However, a strong reading of exports for the September 1-20 period by cargo surveyors provided support. Both cargo surveyors Intertek and SGS say September 1-15 shipments are up 14 per cent and 12 per cent, respectively. The trend remains quite weak owing to the increased crude palm oil (CPO) production period in South-East Asia. South-East Asian palm oil production is rising on seasonal factors and typically hits a peak in September-October, paving the way for a potential hike in stocks and therefore weighing prices down.

CPO active month futures are moving with a bearish bias. As mentioned in the previous update, declines below key supports could dent bullish expectations and this could potentially revive bearish hopes again. Big picture charts are also turning weak. A fall below 2,275 Malaysian ringgit a tonne (MYR/t) increases further the chances of a decline to recent lows at 2,150-75 MYR/ton. Resistances are now at 2,345-50 MYR/t, followed by 2,385 MYR/t levels.

Only a push above 2,415 MYR/t could revive bullish hopes again for a move above 2,500 MYR/ton, which we do not favour now. In the medium-term picture, the broad consolidation in the 2,175-2,500 MYR/t level is still under way. A close below 2,150 MYR/t could turn the picture very weak targeting lows near 1,850-1,900 MYR/t levels. However, there is hope for prices to find strong support near 2,150-75 MYR/t levels. If that happens, the broad consolidation could only continue for more time.

For the time being we will stick to the current wave counts. Only a close below 2,270 MYR/t can force a review. The present decline has met an intermediate wave target at 2,135 MYR/t and the subsequent impulse characteristics of the present move makes us believe that it could exhaust near 2,500 MYR/t levels and then a subsequent decline to 2,345-50 MYR/t levels. It looks like the anticipated decline materialised. Further to this decline, a sharp third wave move looks likely for 2,575-2,600 MYR/t in the coming months.

Relative Strength Index is in the neutral zone, indicating it is neither overbought nor oversold. The averages in MACD have gone below the zero line of the indicator, hinting at a bearish reversal. Only a crossover above the zero line again could again hint at possible bullishness.

Therefore, look for palm oil futures to head lower and test the support levels.

Supports are at MYR 2,270, 2,155 and 2,085. Resistances are at MYR 2,345, 2,385 and 2,425.

(The author is the Director of Commtrendz Research and is 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. The author can be reached at >gnanasekar.t@gmail.com .)

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