USD/TRY gradually approaches the all-time high around 18.25

The Turkish lira remains on the back foot and helps USD/TRY advance to the boundaries of 18.20, or new 2022 highs, on Monday.

USD/TRY keeps targeting the YTD tops

USD/TRY fades Friday’s small downtick and started the fourth consecutive week with gains, trading at shouting distance from the all-time highs around 18.25 (December 20 2021) on Monday.

The lira prolongs its march south, as investors continue to hold a negative view of the currency, particularly following the latest decision by the Turkish central bank (CBRT) to reduce the policy rate, always in a context of persistent global and domestic elevated inflation and the relentless tightening bias in global central banks.

In the domestic calendar, the Economic Confidence Index improved a tad to 94.30 in August (from 93.40), while the trade deficit broadened to TL10.69B during July.

What to look for around TRY

The upside bias in USD/TRY remains unchanged and trades closer to the all-time high around 18.25. The uptrend in spot has been intensified after the unexpected interest rate cut by the CBRT on August 18.

In the meantime, price action around the Turkish lira is expected to keep gyrating around the performance of energy and commodity prices - which are directly correlated to developments from the war in Ukraine - the broad risk appetite trends and the Fed’s rate path in the next months.

Extra risks facing the Turkish currency also come from the domestic backyard, as inflation gives no signs of abating (despite rising less than forecast in July), real interest rates remain entrenched well in negative territory and the political pressure to keep the CBRT biased towards low interest rates remains omnipresent.

In addition, there seems to be no other immediate alternative to attract foreign currency other than via tourism revenue, in a context where official figures for the country’s FX reserves remain surrounded by increasing skepticism among investors.

Key events in Türkiye this week: Economic Confidence Index, Trade Balance (Monday) – Q2 GDP (Wednesday) – Manufacturing PMI (Thursday).

Eminent issues on the back boiler: FX intervention by the CBRT. Progress of the government’s new scheme oriented to support the lira via protected time deposits. Constant government pressure on the CBRT vs. bank’s credibility/independence. Bouts of geopolitical concerns. Structural reforms. Presidential/Parliamentary elections in June 23.

USD/TRY key levels

So far, the pair is gaining 0.30% at 18.1835 and faces the immediate target at 18.1973 (2022 high August 29) seconded by 18.2582 (all-time high December 20) and then 19.00 (round level). On the other hand, a breach of 17.7586 (monthly low August 9) would pave the way for 17.5444 (55-day SMA) and finally 17.1903 (weekly low July 15).