Malaysian palm oil futures on the Bursa Malaysia Derivatives were lower on Monday, due to sluggish export demand, as traders forecast rising production in line with the seasonal trend.

CPO active month July futures moved lower and are poised to break key short-term supports. As mentioned in the previous update, prices took support around MYR 2,610-20/tonne, being a very strong rising trend line support zone.

Once again this level will come back into focus as prices are looking vulnerable for a drop. Failure to hold support here could push prices even lower towards 2,570, which is a potential target for this correction to end.

Only an unexpected decline below 2,565 levels, could cause doubts on our overall bullish view. Such a fall though not expected could also see prices drifting lower again towards 2,508 followed by 2,460-65 levels where strong supports are noted again. The trigger for a such a fall will be seen on a close below 2,600 in the coming week. Despite this price correction, the overall trend remains neutral to bullish, with a good chance of prices moving back towards 2,800 levels.

Our favoured view expects prices to get capped in the 2,685-2,700 range and decline lower towards support levels mentioned above and the uptrend to resume higher again.

Wave counts: A possible new impulse looks to have started again. One of our targets at 1,850 was met. The rally from there looks very impressive.

The current move could push higher towards 2,645 initially and then it could correct lower in a corrective pattern towards 2,310 or even lower to 2,250, and then subsequently rise towards a medium to long-term target at 2,900, which could bring this current impulse to an end.

The medium- to long-term expectation that we have been having is slowly materialising and we will watch for any signs of exhaustion in the above zone. Any dips could prove to be opportunity to participate in the upcoming uptrend.

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 still 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 test the support levels.

Supports are at MYR 2,610, 2,585 and 2,570. Resistances are at MYR 2,685, 2,725 and 2,800.

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

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