The US dollar was one of the main beneficiaries last week, as investors thronged to safe-haven currencies. However, there was one exception. It was the Thai Baht, which strengthened against the Greenback (THBUSD). The Thai Baht strengthened from 35.0814 to 35.0567 against the US dollar. While many traders wonder what is going on in Thailand to make its currency stronger, for the reasons provided below, we believe that the trend has just now started.
The Thai economy grew 0.9% in the first quarter of 2016, compared to analysts’ growth estimates of 0.8%. The National Economic and Social Development Board (NESDB) stated that the economy grew 3.2% in the quarter ending March, compared to a similar quarter of 2015. The reported growth is the strongest recorded since 2013. A survey conducted by Bloomberg had predicted a growth of 2.8% in the first quarter.
The military government headed by Prime Minister Prayuth Chan-Ocha is currently implementing $11 billion (400 billion Baht) worth stimulus measures. This is having a positive effect on the economy. Southeast Asia’s second-largest economy is expected to see a record GDP growth between 3% and 3.5% in 2016. There is also considerable political stability in the country after the military took control of the country in 2014.
The US economy, on the other hand, continues to post weak growth. The non-farm payrolls data released in the first week of June indicated that 38,000 jobs were added in May, against expectations of 159,000 jobs. The weak economic data have forced the US Fed to postpone its plan to announce a rate hike in June. Ultimately, this has weakened the US dollar.
Finally, Thailand is expected to be less affected by the outcome of the Brexit referendum. The country derives less than 3% of its export revenue from shipments to the UK. Furthermore, Thailand hardly imports anything from the UK. Thus, considering these facts, it can be argued that the USDTHB pair will remain in a downtrend until the US economy shows signs of a strong recovery.
Technically, the USDTHB has broken the ascending channel as shown in the image. The MACD has formed a bearish crossover below the zero line. Thus, we can expect the USDTHB pair to decline further to the next support at 34.88.
So, a Forex trader should go short in the currency pair at this point in time. The stop-loss order can be placed above 35.15. The profit can be booked at 34.90 levels.
A binary trader should look for a one-touch put option trade in any suitable broker’s portal. If necessary, the trader should negotiate a strike price of 34.90 or higher. Similarly, an expiry in the last week of July should be chosen for the selected contract.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
