With investors unwinding positions before the Eid holidays, Malaysian palm oil futures on Bursa Malaysia Derivatives ended marginally lower on Wednesday, tracking weaker Chicago Board of Trade soya oil futures. In focus next week are July crop data from Malaysia, the world's top producer after Indonesia, and August 1-10 export estimates by cargo surveyors.
Exports rose last month, signalling there may be a further decline in stocks when the Malaysian Palm Oil Board issues July industry data on August 14. Forecasts of crop friendly weather across the US Midwest have fanned expectations of bumper crops in agriculture markets, including soyabeans, which could dampen sentiment for the edible oil markets. The US Department of Agriculture will release updated production data on August 12.
Crude palm oil active month futures declined lower against expectations. As mentioned in an earlier update, though weakness persists in the bigger picture, oversold conditions warn of a pullback in the coming sessions towards 2,285-2,300 Malaysian ringgit a tonne (MYR/t) levels. Prices are threatening to break below the key 2,200 MYR/t levels, which could dash bullish hopes.
Key supports are at 2,190-2,195 MYR/t, followed by 2,170-2,175 MYR/t. While the supports hold, there is a good possibility of prices attempting to cross over the recent highs at 2,300 MYR/t. As we have maintained, though the possibility of a retracement exists in the coming sessions, the underlying trend still remains weak and we see such a pullback as a corrective one within a downtrend. Decline below 2,160 MYR/t could once again revive bearish hopes for 2095 MYR/t. The wave counts still remain mixed and prefer for the time being to go with possibility of an end of wave “C” at 2,220 MYR/t now. A decline below 2,350 MYR/t has dashed our bullish hopes. Ideally, prices could come down towards 2,095 MYR/t or even lower in the bigger picture. With the way prices have been behaving, the preferred wave counts now could be an extended wave “A-B-C-D-E” and eventually a break below 2,200 MYR/t opening the way for lower levels. Relative Strength Index is in the neutral zone indicating that it is neither overbought nor oversold. The averages in MACD are below the zero line of the indicator, hinting at bearishness to be intact. Only a crossover above the zero line again could hint at a bullish reversal now. Therefore, look for palm oil futures to test the supports and then rise again. Supports are at MYR 2,190, 2,170 and 2,095. Resistances are at MYR 2,245, 2,285 and 2,325.
(The author is the Director of Commtrendz Research and 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 historical price movements and there is risk of loss in trading. The author can be reached at >gnanasekar.t@gmail.com .)