According to Market Strategist Quek Ser Leang at UOB Group, a sustained drop below 34.30 in USD/THB seems unlikely for the time being.
Key Quotes
“We highlighted last Monday (27 Feb, spot at 35.13) that ‘further USD/THB strength appears likely’. We added, ‘in view of the overbought conditions, USD/THB may find the major resistance at 35.57 difficult to break’. While USD/THB subsequently rose to 35.39 on Tuesday, the surprisingly sharp pullback from the high took out a few strong support levels.”
“The pullback amid the still overbought conditions suggests that 35.39 could be a short-term top. The pullback has scope to extend but any decline is viewed as a lower trading range of 34.30/34.90. In other words, a sustained decline below 34.30 is unlikely.”
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Short-term investors in the USD/THB should take notice as the pair’s recovery from the depths of 2019 could be about to plateau. According to economic research and investment bank UOB, a short-term high has been established, at least for now.
Having recovered from its lowest level since late of 2019 of 31.2 back to 33.6, the USD/THB is now 0.8% above its current monthly average. UOB analysts stated that a possible further accelerating move is unlikely unless the pair moves beyond 34. This limitation was likely due to Banks taking a stricter line in terms of money access to allow only essential needs.
Although a short-term high has been put in place, the Thai Bank analysts also stated that the pair’s outlook for the long-term has not shifted. They noted that the Bank of Thailand remains concerned with the U.S. dollar strength, which means the USD/THB could stay lower in the weeks ahead.
The long-term forecast relies upon the ability of the Thai economy to rebound from the impact of the virus, which is expected to go mainly to the service and tourism sectors. The Central Bank of Thailand has already cut its forecast for GDP growth for this year to between -4.0 and -7.0%, so it is up to these sectors to revive the economy in the second half of 2020.
In the meantime, there could be some more room for USD/THB strength when the pair breaks past 34, particularly if the central bank intervenes in the market. Further support could also come from the yields of U.S. bound treasuries, which have recently improved.
Overall, the current outlook for the USD/THB pair has not changed drastically and the main factor will depend on the performance of the Thai economy and the interventions of the Bank of Thailand. In the short-term, the USD/THB is capped at 34 and a move beyond this level could offer USD bulls more bullish prospects.
