- USD/TRY adds to Monday’s decline in the 5.7600 area.
- US-Turkey tensions on S-400 remain well and sound.
- TRY stays supported after Sunday’s elections results.
The Turkish Lira keeps the positive note unchanged so far this week and is now dragging USD/TRY to fresh daily lows in the 5.7600 neighbourhood.
USD/TRY looks to US sanctions, Powell
The optimism around the Lira stays intact in the first half of the week, gaining extra ground after Sunday’s victory of the CH Party at the municipal elections in Istanbul. The results, and the subsequent acknowledgement by Erdogan’s government seem to have alleviated uncertainty around the capacity of the government to digest the defeat.
On another direction, jitters around the likeliness of US sanctions against the country following the purchase of the Russian S-400 defence system remain firm and carry the potential to undermine any serious recovery in TRY.
Later in the day, all the attention will be on Chief Jerome Powell, as he delivers on US economic outlook and monetary policy. The centre of the debate will undoubtedly by around the prospects of rate cuts in the next months.
What to look for around TRY
Recently, 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. On the positive view, TRY could gain some support along with the rest of the EM FX space in response to the recent shift of the Federal Reserve to a more dovish view on it monetary conditions. On the not-so-bright side emerges the protracted US-China trade dispute and its impact on the global growth.
USD/TRY key levels
At the moment the pair is losing 0.41% at 5.7715 and a breakdown of 5.7116 (low Jun.24) would aim for 5.7025 (50% Fibo retracement of the 2019 rally) and then 5.6560 (low Jun.5). On the other hand, the next up barrier is located at 5.9053 (55-day SMA) followed by 5.9326 (high Jun.14) and finally 6.1516 (high May 23).
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