USD/TRY drops to 3-day lows near 5.82, as Lira keeps appreciating

The Turkish Lira is extending the upside momentum in the first half of the week and is now dragging USD/TRY to fresh 3-day lows in the 5.82 region.

USD/TRY lower despite data, USD strength

The Turkish currency is appreciating for the second session in a row on Tuesday despite the broad-base USD-buying and the recently published data releases in the domestic docket.

In fact, the recovery in Turkish Industrial Production seems to have lost some shine in April, contracting more than expected at an annualized 4.0% and 1.0% on a monthly basis. Further publications also saw Retail Sales contracting 1.8% inter-month and 6.9% over the last twelve months.

Earlier in the week, Quarterly 3-month Jobless Average ticked lower to 14.1% in March and the Budget deficit shrunk to $12.1 billion during May.

What to look for around TRY

The Turkish Lira has been losing ground since monthly lows in the 5.65 region (June 5). At last week’s meeting, the CBRT left no doubts it will continue to support the current tight monetary conditions. However, the enduring disinflation process seen in past months opens the door to a potential shift from the central bank to a more accommodative stance, including the palpable chance of rate cuts despite this move on rates appears untimely in the near (and medium) term. Real headwinds for the Lira, however, remain well and sound and loom from the increasing likeliness of US sanctions and further escalation in US-Turkey tensions around the Russian S-400 defence system. It does not get better for TRY if we include in the equation the probable acceleration of outflows from the EM space in response to the deterioration of the US-China trade scenario and the plausible increase of domestic effervescence in the run up to the municipal elections in Istanbul due on June 23. That said, another move to the psychological yardstick at 6.00 the figure in the short-term horizon should be everything but ruled out.

USD/TRY key levels

At the moment the pair is down 0.48% at 5.8421 and a breach of 5.8174 (10-day SMA) would open the door to 5.6560 (low Jun.5) and then 5.6169 (200-day SMA). On the other hand, the next up barrier emerges at 5.9326 (high Jun.14) followed by 5.9893 (23.6% Fibo retracement of the 2019 rally) and finally 6.1516 (high May 23).