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Malaysian palm oil futures on the Bursa Malaysia Derivatives ended lower on Friday on position adjustment ahead of the MPOB and USDA data due tomorrow.
CPO futures hit a three-month high earlier after Indonesia approved a near-three-fold rise in biodiesel subsidies that will boost use of the tropical oil by its top producer.
The higher subsidies of 4,000 rupiah per litre, from 1,500 rupiah now, may be implemented as soon as March.
CPO futures is expected to continue to rise in the next few months as the higher subsidies could draw into the Indonesian palm inventories, at a time when supplies from No.2 grower Malaysia are expected to be tight due to unfavorable weather.
CPO active month April futures pulled back strongly higher against expectations.
As mentioned in the previous update, a rise above MYR 2,285/tonne will revive bullish hopes again in the coming sessions.
The anticipated resistance at MYR 2,250 levels that was broken easily has turned into a strong support level in the near-term.
Any corrective dips could find initial support at MYR 2,285 followed by strong support at MYR 2,245-50 levels.
While the above mentioned support holds, we can initially expect prices to edge higher towards the previous high of MYR 2,395-2,400 a tonne levels or even higher towards MYR 2,420-30 levels. Subsequently, we expect prices to grind lower again towards MYR 2,225-30, followed by MYR 2,175 which is a strong trendline support point.
We will have to once again review the wave counts, but will wait for a crossover above MYR 2,400/tonne to do that. Till then we will stick to our earlier assessment.
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 a tonne mark, which we anticipated earlier.
We are now tracking the final leg of an impulse in a declining trend with potential targets near MYR 1,850 or even lower to MYR 1,700.
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 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 rise again.
Supports are at MYR 2,285, 2,245 and 2,200. Resistances are at MYR 2,355, 2,395 and 2,425.
The author is the Director of Commtrendz Research. There is risk of loss in trading.
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