Pressure Remains On EM Currencies

USDTRY, Daily

Although the USD weakened a touch overnight, the general risk sentiment and capital flows remain USD positive in the short to medium term, and especially against the emerging market (EM) currencies. The Mexican Central Bank yesterday raised interest rates to 7.75% as expected after 2 months of MXN depreciation. Today, the new Prime Minister of Malaysia, 92-year old Mahathir Mohamad, sees fair value for USDMYR at 3.800, it currently trades over 5% higher at 4.000, and over the weekend there are Presidential Elections in Turkey, with the Lira (TRY) under substantial pressure even after significant intervention from the central bank.

USDTRY peaked at 4.9164, and declined rapidly to the 50% Fibonacci level (4.4597) and then found support following the central bank’s intervention. Currently, the 23.6 Fibonacci level is holding at 4.7140, following the break into the upper half of the Bollinger band on June 6. RSI, at 62, and MACD both have more room to appreciate. The psychological 4.8000 and the upper Bollinger band at 4.8377 are achievable, once the resistance at the latest Fractal high is breached at 4.7750. To the downside, a break of the 4.4200 level could see the lower Bollinger band and 61.8 Fibonacci level at 4.3600 a target area. However, as Financial Times has reported this morning, “Turkey is textbook unstable,” said Ryan Gingeras, an associate professor at the Naval Postgraduate School in California. “We don’t know how society is going to react, whether the opposition wins or whether Erdogan wins… Everything is up in the air.” This alone suggests risk to the upside for USDTRY.