USD/TRY fades the initial spike, testing lows near 6.03

The Turkish Lira has regained some composure at the beginning of the week and is now dragging USD/TRY to the 6.04/03 band, giving away initial gains to the 6.08 region.

USDTRY focused on risk trends, politics

Spot is now facing some headwinds following two consecutive daily advances, although the key 6.10 handle keeps capping the upside for the time being.

In the meantime, price direction in the EM FX universe is deriving some support following the lack of fresh developments in the US-China trade front and the recent collapse in the negotiations.

On the domestic area, the likelihood of another US-Turkey confrontation remains well on the cards after President Erdogan has ruled out over the weekend the probability that the country could delay the purchase of the Russian missile defence system.

Later in the week, Capacity Utilization figures and the Manufacturing Confidence gauge will be the only releases in the Turkish calendar.

What to look for around TRY

Volatility around the Turkish Lira has subsided somewhat as of late, although the broader sentiment around the EM FX space should continue to influence on the currency as well as headlines from the US-China trade front. In addition, friction between the AKP and its main opposition party ahead of the municipal elections in Istanbul is also emerging as another source for Lira volatility. Further out, potential US sanctions following the purchase of the Russian missile defence system keeps lingering over the country as well as sanctions over Iranian crude oil exports. Adding insult to injury, the independence and credibility of the CBRT should remain under the microscope against the omnipresent conflict between the Erdogan’s administration and bank’s authorities.

USD/TRY key levels

At the moment the pair is retreating 0.34% at 6.0339 and a breach of 5.9975 (21-day SMA) would expose 5.9472 (low May 10) and then 5.7094 (low Apr.17). On the other hand, the next hurdle emerges at 6.1311 (high May 13) seconded by 6.2457 (2019 high May 9) and then 6.8353 (high Aug. 30 2018).