Asian currencies excluding Japan traded stronger after stronger USD/CNY fix with rumors of PBOC widening USD/CNY trading band. Thai baht strengthened, pushing USD/THB below 29.70 support and triggered institutions to trade lower to extend the breakout to a low of 29.55. Price has been pulling back since the morning sell-off, though downside pressure continue to weigh especially after yesterday’s Fitch upgrade of Thai sovereign bonds. Bank of Thailand reportedly started buying USD/THB to weaken the Baht around 29.72, and the seemingly absence of BOT market action this morning gave rise to rumors that Bank of Thailand is resigned to not intervene anymore, as they have allegedly sold 100 million USD worth of Baht yesterday. Nonetheless, analysts are expecting BOT to re-intervene again should Baht reach a further low, very similar to BOJ’s behavior when USD/JPY is trading below 80.0 back in mid 2012.
From a technical perspective, the breakout is an acceleration of bearish momentum. However the acceleration may be temporary with Stochastic readings seemingly stabilized and forming an intermediate trough around 50.0. Current readings is within the range that we’ve seen between 7th – 9th Mar in which we saw price trading mostly horizontally. Using Stochastic as a reference, we could similarly see price trading sideways around 29.6 pivot. Failure to breach 29.7 will continue to weigh on price to increase likelihood of further downside. Conversely, a break higher above 29.7 will invalidate the current breakout and potentially allow price to stay within the 29.7 – 29.8 band.
Daily chart is more bearish, with descending trendline and Kumo weighing price down. However, price has failed to push beyond Jan lows and that will give bulls some hope for significant pullback. However, stochastic readings is dampening bulls hope with readings looking to break lower away from the 40~50 range which characterize the Stoch indicator between Nov – Dec 2012. This break highlights the strong bearish momentum and brings out the possibility of price potentially breaking below current consolidation between 29.55 to 30.0. The previous time Stoch reading reached this low, price fell from above 30.5 to the 29.55 low back in Jan.
The Thai Government announced today that the first Bangkok – Pattaya high-speed rail will be completed by 2018, one of the items on a long list of infrastructure upgrades Thailand will be embarking this decade. With Government spending increasing, there is bound to be higher influx of foreign funds as investors will find numerous business opportunities within Thailand. This has an inflationary impact on Baht which can potentially drive USD/THB lower in the future – that is if BOT and exporters let it that is. BOT has been relatively hawkish and has rebuffed calls for rate cuts twice this year. Governor Trairatvorakul has re-iterated that exporters are not detrimentally affected by the stronger Baht though, as Asian Currencies excluding Yen has been strengthening together. Such stance will encourage Baht holders to maintain their long positions as they enjoy higher interest rates without deflationary risks, maintaining THB strength in the short-term.
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