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The U.S. dollar index (DXY) tumbled 0.88% to settle at 93.96 at the close on Wednesday, after the release of the Federal Reserve’s Beige Book indicating that the U.S. economy continues modest expansion at the end of the third quarter, as the strong dollar continues to hurt certain sectors of the U.S. economy including manufacturing, energy and tourism. The USD/THB exchange rate dipped 0.44% to 35.174 baht per dollar, which sent the SET surging 1.44% to close at 1,425.32 on Thursday.
The federal funds futures, traded on the Chicago Mercantile Exchange and commonly used to estimate the market’s views on the likelihood of changes in U.S. monetary policy, indicate only 5% odds for a quarter-point rate hike at the October 28 policy meeting, while the odds are 30% at the December 16 meeting, according to data from CME Group as of October 15.
Since the beginning of October, individual investors of the SET have been selling into the rally. According to SET market data, net sells of individuals were 3.1 billion baht on Thursday and are topping 16.4 billion baht in October. Foreign investors and proprietary traders have been buying heavily with combined net buys of 17.9 billion baht this month. During the same period, the SET has been up 5.66%.
From our short-term technical viewpoint, the SET is moving in an ascending (ASC) wedge within a bullish higher low (H-L) chart pattern, meaning every low is higher than the previous low while every high is higher than the previous high. Another bullish sign is that the SET is trading above the 50-day SMA (green line), which has begun to bend upward.
From the chart, 1,412 represents the overhead supply level at which investors who were trapped in the downtrend market just want to sell at the first opportunity to break even. There could be several resistances at levels between 1,420 and 1,459.54, or 23.6% Fibonacci retracement. Nonetheless, the SET should be able to break out if the USD/THB exchange rate stays below the 36.50 baht per dollar level, and the U.S. Federal Reserve stays on the sidelines. The projected price target is 1,462. As the old saying goes, “Don’t fight the tape and the Fed!”.
One may want to pay attention to the Bank of Thailand (BOT), as the bank has a weak baht policy. A strong baht could force the BOT to cut the rate at their next meeting. Thailand's central bank announced at the end of April that the bank encourages more capital outflows to weaken the baht.
One should also be aware that the U.S. markets are ready to break out, while the Shanghai Composite index has already broken out. Thus, the risk/reward to stay long in the market increases.
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