The GBP/THB exchange rate looks poised to move higher, after pausing in its rebound off the April lows
Like most pound pairs the sterling-baht has formed what appears to be a base, from which it has made tentative gains.
As long as Brexit concerns do not deteriorate - which looks not to be the case given polls are once again showing a small increase in the stay vote - the pair could rise further. If the referendum vote returns a majority vote for ‘Remain’ then the pair will probably make big moves higher as the totality of risk premium associated with Brexit is sucked back up.
The techs are showing a two-part move has formed from the April lows, and we are currently in the second ‘B-C’ wave, which is composed of a consolidation, or flag type pattern. The formation looks in incomplete without a third and final move higher (C-D), of about an equal length to the first wave.
This will probably take us back up to the R1 monthly pivot at 51.858. Monthly Pivots are calculated using the monthly high, low, open and close. Traders often open position against the dominant trend at their level and they therefore pose and obstacle to trending markets. Prices will usually stall and pause or even bounce or rebound at their level.
According to Trading Economics’s macro-economic models the Baht is expected to fall steadily by 2.5% versus the dollar in 2016. Given the pound's weakness due to Brexit risk, a similar or even greater fall would be expected versus sterling, with a base case of a similar 2.5% fall versus the pound leading an end of Q4 result of 52.409 (51.131 +2.5%).
Focus Economics expects the Baht to also weaken marginally in 2016, falling to 35.4 from 35.2 (USD) currently. Exports are a particular area of concern as a slow-down in global growth has reduced demand for Thai exports:
“The currency has been in freefall since August due to factors such as the devaluation of the Chinese yuan and the 17 August Bangkok bombing. Lately, there are renewed concerns that Thai exports have likely recorded another weak annual variation in the third quarter due to underperforming global demand.”
Although exports in February slowed, that was from a particularly strong month in February which say a rise of 10.4% in exports mom.
The March data was also 1.3% higher than the year before, and aggregated exports have risen more in 2016 YTD than 2015.
The graph below shows imports and exports starting to diverge, and the possibility of exports starting to change their trend.
Although the picture is not all negative for the Baht the probability the pound will recoup substantial Brexit losses means sterling is still favoured in Q2, leading to a rise in the pair.