Risks of intervention increase: we up the stop on TRY shorts - TDS

Analysts at TD Securities offered their trade update on their USD/TRY position.

Key Quotes:

"We entered a long USDTRY position in our model portfolio last week with a target of 5.25. The trade has so far performed in line with our expectations. At the time of writing, USDTRY is trading at 5.19, This is above inception of 4.9792 and slightly below an all-time high of 5.1960 posted today."

"The relentless upside move in USDTRY is causing increasing pain in Turkey. To ease pressure, the CBRT has injected $2.2bn of liquidity in the system by reducing the Reserve Option Coefficients (ROCs) - in brief, the CBRT has cut from 2.9 times to 2.5x the penalty that banks have to pay on the 40-45% FX tranche of their statutory reserves held in USD instead of TRY."

"The move is quantitative and works as a one-off USD injection. It can, therefore, help the lira rebound. However, failing to appreciate sustainably, further reductions of the ROCs and/or monetary tightening will be required. Given the increasing possibility that the CBRT moves towards more decisive action, we increase the stop loss from 4.8650 to 5.10, which allows us to lock in a minimum 2.4% of profit on this position, net of negative carry (ca. 4bps/day)."