USD/TRY in weekly tops near 8.3500

The Turkish currency depreciates to new multi-day lows vs. the dollar and lifts USD/TRY to fresh peaks around 8.3500.

USD/TRY targets 8.4000 near-term

USD/TRY leaves behind the daily pullback recorded at the beginning of the week, as sellers regain control of the sentiment around the Turkish lira and the dollar retakes the upper hand in the global markets.

Indeed, the firmer demand for the dollar – despite diminishing yields – puts the EM FX space under pressure, always on the back of the increasing optimism on the US economic recovery in the post-pandemic era.

On the domestic front, latest news cites the country could start easing some restrictions once the ongoing 17-day lockdown, which started on April 29, finishes. In fact, both daily cases of coronavirus and hospitalizations are seeing a sharp decline from previous days, which opens the door to a gradual resumption of activities in the wake of the current lockdown.

In the meantime, cautiousness among market participants is expected to gradually dominate the scenery around the lira as markets get closer to the Turkish central bank (CBRT) event later in the week.

What to look for around TRY

The near-term outlook for the lira remains fragile to say the least. Despite keeping rates unchanged at the latest meeting, Governor S.Kavcioglu is gradually expected to reverse (wipe out) the shift to a market friendly approach of the monetary policy that was successfully implemented by former Governor N.Agbal back in November 2020. Against this, it will surprise nobody to see the CBRT returning to the unorthodox/looser monetary stance in the next months, opening the door to further lira depreciation, FX reserves exodus and rising bets on a Balance of Payment crisis. Against this backdrop, it will surprise nobody to see spot trading around 10.00 in the medium-to-longer run.

Key events in Turkey this week: End of Year CPI Forecast (Wednesday) – CBRT Interest Rate decision (Thursday).

Eminent issues on the back boiler: Potential US/EU sanctions against Ankara. Government pressure on the CBRT vs. bank’s credibility/independence. Bouts of geopolitical concerns. Much-needed structural reforms. Growth outlook vs. progress of the coronavirus pandemic. Capital controls? The IMF could step in to bring in financial assistance.

USD/TRY key levels

At the moment the pair is advancing 0.83% at 8.3159 and faces the next up barrier at 8.3464 (weekly high May 4) followed by 8.4840 (2021 high Apr.26) and then 8.5777 (all-time high Nov.6 2020). On the other hand, a drop below 8.1316 (weekly low Apr.29) would aim for 7.9937 (weekly low Apr.15) and then 7.8837 (50-day SMA).