Analysts at Brown Brothers Harriman explained that the lira continues to underperform.
Key Quotes:
"In 2016, TRY fell -17% vs. USD and was behind only the worst performer ARS (-18%). So far in 2017, TRY is -1.1% YTD and is again ahead of only the worst performer ARS (-1.9%). Our EM FX model shows the lira to have VERY WEAK fundamentals, so this year’s underperformance is to be expected.
USD/TRY has traded largely in a narrow 3.50-3.80 range since the end of January. Retracement objectives from the January-April drop come in near 3.67 (38%), 3.7150 (50%), and 3.76 (62%), while the 200-day moving average comes in near 3.4205.
Turkish equities are outperforming after lagging last year. In 2016, MSCI Turkey was up 4% vs. 7% for MSCI EM. So far this year, MSCI Turkey is up 24.4% YTD and compares to 17% YTD for MSCI EM. This outperformance should ebb, as our EM Equity model has Turkey at a NEUTRAL position.
Turkish bonds have outperformed recently. The yield on 10-year local currency government bonds is about -64 bp YTD. This is behind only the best performers Argentina (-149 bp), Indonesia (-92 bp), Russia (-87 bp), Colombia (-77 bp), and Peru (-64 bp). With inflation likely to continue rising and the central bank likely to tighten further, we think Turkish bonds will start underperforming.
Our own sovereign ratings model has Turkey’s implied rating worsening a notch this quarter to BB-/Ba3/BB-. We think Turkey continues to face growing downgrade risks to its BB/Ba1/BB+ ratings."
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD trades weak below 1.0800 amid Good Friday lull, ahead of US PCE
EUR/USD remains depressed below 1.0800 after soft French inflation data, amid minimal volatility and thin liquidity on Good Friday. The pair keenly awaits the US PCE inflation data and Fed Chair Powell's speech for fresh hints on next week's price action.
GBP/USD holds steady above 1.2600 as markets stay calm on Good Friday
GBP/USD trades sideways above 1.2600 amid a typical Good Friday trading lull. A broadly firmer US Dollar could keep any upside attempts limited in the pair ahead of the US PCE inflation data and Fed Chair Powell's appearance.
Gold price sits at all-time highs above $2,230, US PCE eyed
Gold price hit all-time highs at $2,236 on Thursday to finish Q1 2024 with a bang. Most major world markets, including the US are closed due to Holy Friday, leaving volatility around Gold price highly subdued. US PCE inflation and Powell are awaited.
Jito price could hit $6 as JTO coils up inside this bullish pattern
Jito (JTO) price has been on an uptrend since forming a local bottom in early January. Since then, JTO has revisited the key swing point formed in early December, suggesting the bulls’ intention to move higher.
Key events in developed markets next week
Next week, the main focus will be inflation and the labour market in the Eurozone. We expect services inflation to be impacted by the easter effect, while the unemployment rate to be unchanged.