EUR/THB: Euro at a 6-Week High Vs Thai Baht
EUR/THB jumped to the highest level since August 2 on Monday as severe flooding in Bangkok threatens to derail the Thai economy.
Tourism Authority of Thailand (TAT) Governor Yuthasak Supasorn warned the flooding in the capital and surrounding provinces, will harm tourism and domestic travel in the third quarter.
The adverse weather is a bitter blow to the Thai economy as it attempts to recover from a two-year covid lockdown. Tourism is a major contributor to Thailand Gross Domestic Product (GDP), as is exports which have also slowed.
The extensive flooding in 21 provinces could force the government to introduce measures to stimulate the struggling economy. Any such measures will weaken the country’s financial position, putting more pressure on the baht.
The conspiracy of bullish dollar, recession risks, and elevated inflation exacerbated by exogenous price shocks mean that EM Asia central banks cannot assume the worst risks are behind us.Vishnu Varathan, head of economics and strategy at Mizuho Bank Singapore.
Another drag on the Thai baht is the nation’s dwindling FX reserves. Thailand, like many Asian nations has drawn down US dollar reserves this year. Banking analysts estimate the Bank of Thailand (BOT) has spent $36 billion, defending the baht in 2022. Part of the problem is the US dollar’s strength, which is eroding local currency values in emerging markets. With this in mind, the BOT faces a tough decision: Stimulate the economy and weaken the baht, or strengthen the baht and weaken the economy.
Euro to Thai Baht Price Forecast
The daily chart shows several positive developments for EUR/THB. Firstly, the push higher on Monday, lifted the rate above the 50, and 100-Day Moving Averages at 36.59 (green), and 36.62 (blue), respectively. Subsequently, the pair briefly pierced the 200-DMA at 36.87m (red). However, EUR/THB pared the early gains, ending the session below the 200-DMA. at 16.57. As a result, the 200-DMA is reinstated as the first significant resistance level.
If the Euro posts a daily close above the 200-DMA, it should extend into the 37.30 to 37.80 range. By contrast, if EUR/THB falls below the 50-DMA, a return to the support around 35.50 is probable.
Considering the disruption to Thailand, we maintain a bullish view on EUR/THB, targeting 37.50 to 37.80. However the bullish view relies on the rate staying above the 50-DMA. For this reason, a daily close below 36.59 negates out price outlook.
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