USD/TRY in 4-day highs near 5.8500

The Turkish Lira continues to depreciate so far this week and is now lifting USD/TRY to fresh multi-day peaks in the 5.8500 region.

USD/TRY looks to geopolitics, sanctions

TRY has come under downside pressure this week following rising concerns over the potential deterioration in the US-Turkey talks involving the Russian S-400 defense system and US-made F-35 jets. In fact, jitters have exacerbated as of late after Turkey stressed the defense system should be delivered at some point next month.

On this issue it is worth mentioning that the White House warned Turkey it couldn’t have both the Russian S-400 and the US F-35 jets, as the Trump administration sees this as a security threat.

On another front, TRY has quickly given away post-CBRT gains on Wednesday after the central bank left unchanged its monetary policy stance, with the One-Week Repo Rate intact at 24.0%. The central bank has once again defended the current stance on monetary policy in order to remove tailwinds from inflation pressures.

What to look for around TRY

The Turkish Lira keeps the rangebound trade well and sound so far this week, with recent lows in the 5.85 region and the 55-day SMA at 5.8745 capping the upside for the time being. As usual, trade effervescence should remain as key driver in the EM FX space, while frictions between the AKP and its main opposition party in the run up to the municipal elections in Istanbul also emerging as another source for Lira volatility. In the very near term, investors are closely following the developments from the US-Turkey effervescence and probable US sanctions against the country over the purchase of the S-400 missile defence system. Additionally, the independence and credibility of the CBRT should remain under the microscope in response to the omnipresent conflict between the government and the bank’s authorities.

USD/TRY key levels

At the moment the pair is up 0.71% at 5.8447 and faces the immediate hurdle at 5.8745 (55-day SMA) followed by 5.9241 (21-day SMA) and finally 6.1516 (high May 23). On the downside, a breach of 5.6560 (low Jun.5) would open the door to 5.6266 (200-day SMA) and then 5.5743 (61.8% Fibo retracement of the 2019 rally).