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Malaysian palm oil futures on BMD ended higher on Monday, as the ringgit weakened and stability returned to Chinese markets.
The ringgit weakened to 4.4170 per dollar before gaining by nearly 0.1 per cent in the evening. Palm oil inventories in Malaysia dropped to their lowest level since February 2015, as dry weather effects of the El Nino kicked in. Falling output in both Malaysia and Indonesia continues to underpin CPO prices, but lack of physical demand continues to weigh on prices. CPO active month April futures are moving in line with our expectations. Though decline in the previous week looked to continue further, the trend still remains bullish and our favoured view expects support levels at MYR 2,385/ton, followed by MYR 2,360-2,365/ton, could still hold and prices could once again attempt to rise.
Prices moved exactly as per expectations. Supports are now seen at MYR 2,445-2,450/ton levels. Only an unexpected decline below MYR 2,430/ton could hint that the expected rise above MYR 2,510-2,520/ton might not materialise.
Such a decline could open the downside again targeting MYR 2,400-2,405/ton levels or even lower to MYR 2,350-2,365/ton levels. Favoured view expects a corrective decline to supports mentioned above and then prices to rise higher again towards a technical objective near MYR 2,630-2,640/ton levels. We reassess the wave counts, as prices have crossed over above MYR 2,370-2,400/ton. One of our targets at MYR 1,850/ton was met.
The current move could push higher towards MYR 2,645/ton initially and then could correct lower in a corrective pattern towards MYR 2,310/ton or even lower to MYR 2,250/ton, and then subsequently rise towards a medium to long-term target at MYR 2,900/ton, which could bring this current impulse to an end.
But, this is clearly a medium to long-term expectation and not to be mistaken for a short-term view. RSI is in the neutral zone now indicating that it is neither overbought nor oversold. As mentioned in the earlier update, the averages in MACD are above the zero line of the indicator hinting a bullish trend to be intact. Only a crossover again below the zero line could hint at a reversal in trend to bearish.
Therefore, look for palm oil futures to correct lower initially and then move higher again.
Supports are at MYR 2,405, 2,375 & 2,350; while resistances are at MYR 2,495, 2,520 & 2,600.
The writer is the Director of Commtrendz Research. There is risk of loss in trading.
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