Malaysian palm oil futures on the Bursa Malaysia Derivatives Exchange ended lower on Friday despite slowing production caused by seasonal decline in yields and La-Nina driven rains. Global economic sentiment is weighing on prices at present. Signs the euro zone debt crisis was threatening the region's biggest economies, such as France and Germany, have raised fears of a breakup of the 17-member currency bloc. Policymakers remained in disagreement over how to resolve the crisis, with Germany opposed to joint euro-zone bonds and a bigger role for the European Central Bank. Weather is the only supporting factor for crude palm oil (CPO) futures currently. CPO futures could turn more bullish as heavy rains tend to reduce harvesting and underpin prices.

CPO futures are moving in line with our expectations. As mentioned in the previous update, prices corrected from MYR3,275-3,285 range after displaying overbought conditions. As expected, they saw a decline to our supports near MYR3,075 a tonne. Prices have moved even lower. However, the bullish picture for CPO still remains intact as long as MYR3,015 a tonne holds attempts to decline. We favour the rallies to continue higher towards MYR3,350 a tonne in the coming weeks while the important support at MYR3,010 a tonne holds. Unexpected decline below MYR3,015 a tonne could drag prices lower towards next important support at MYR2,985 a tonne.

We believe the impulse that began at MYR1,427 a tonne, which hit MYR4,486 a tonne, ended and a prolonged corrective move has possibly ended at MYR1,335 a tonne. In the big picture, a new impulse began at MYR1,335 a tonne and the third wave with a projected objective of MYR3,900 a tonne has been met. A corrective wave ‘B' has met one potential target near MYR3,465 a tonne. A wave ‘C' kind of a decline ended at MYR2,755 a tonne itself. A possible new impulse has begun now with immediate targets in the MYR3,350-3,365 a tonne range. The relative strength index is in the neutral zone now, indicating that it is neither overbought nor oversold. The averages in MACD are above the zero line of the indicator indicating a bullish reversal. Only a cross over below the zero line again could hint at a resumption in the bearish trend.

Therefore, look for palm oil futures to test the support levels and then rise higher.

Supports are at MYR3,045, MYR3,015 and MYR2,985. Resistances are at MYR3,155, MYR3,185 and MYR3,220.

The author is the Director of Commtrendz Research and on the advisory panel of Multi Commodity Exchange of India Ltd. The views expressed in this column are his own and not that of MCX. This analysis is based on historical price movements and there is risk of loss in trading. He can be reached at >gnanasekar_thiagarajan@yahoo.com.

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