USD/TRY climbs to 5.65 on renewed US-Turkey dispute

  • USD/TRY met initial support in the 5.60 neighbourhood.
  • US-Turkey tensions back in centre stage on F-35, S-400.
  • Turkey End year CPI Forecast next on tap.

The Turkish Lira has given away initial gains and is now lifting USD/TRY to the vicinity of 5.65, or daily highs.

USD/TRY re-focused on US-Turkey tensions

After four consecutive daily pullbacks, spot is now showing some recovery after briefly testing 2-week lows in sub-5.6000 zone.

Sellers appear to have returned to the Lira after the US excluded Turkey from the F-35 programme, all in response to the purchase of the Russian S-400 defence missile system. Despite Ankara censured the unilateral initiative by the US and advocated for the continuation of the negotiations between both countries, speculations of potential US sanctions have gained momentum in past hours.

Fanning the geopolitical flames, Russia is said to have offered Turkey advanced SU-35 jets.

In the data space, Turkey’s End of Year CPI Forecast is due later, while the flash reading of the US Consumer Sentiment by the U-Mich index will be the salient event in the US calendar.

What to look for around TRY

Recently, the newly appointed CBRT Governor M.Uysal left no doubts the central bank will continue to support price stability in a context of total independence. This view will surely be put to the test at the next monetary policy meeting later in the month. However, the enduring disinflation process looks unabated, as reflected in the performance of consumer prices during June and this could open the door to a potential shift from the central bank to a looser monetary stance, including the palpable chance of rate cuts despite this move on rates appears somewhat untimely in the near term. On another direction, the country needs to implement the much-needed structural reforms (announced in April) to bring in more stability and start a serious recovery in both economic activity and credibility.

USD/TRY key levels

At the moment the pair is gaining 0.71% at 5.6482 and a surpass of 5.7000 (21-day SMA) would expose 5.7556 (100-day SMA) and then 5.7849 (high Jul.8). On the downside, the next support aligns at 5.5971 (low Jul.19) followed by 5.5741 (monthly low Jul.4) and then 5.5639 (200-day SMA).

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