Piotr Matys, EM FX Strategist at Rabobank, suggests that the USD/TRY is definitely at a critical juncture after spending the last few weeks trading within the ascending triangle.
“Looking purely from the perspective of technical analysis one would argue that the odds are skewed in favour of a break below the 6.00 level given that it is a bearish pattern. The August 16 low at 5.6968 would be an initial target followed by the 100-day moving average at 5.4357.”
“For such a bearish breakout to occur, however, a strong catalyst is required as the base of the triangle around the 6.00 level proved tough to clear throughout September and earlier this month.”
“What could cause a break lower? A Turkish court will decided on Friday whether to free US pastor Brunson, who has been at the epicentre of the diplomatic conflict between the US and Turkey. He has been accused for being involved in plotting the failed coup in 2016 – an accusation that he firmly denies. If he is released, it would be a major positive signal for the lira and should prove sufficient for USD/TRY to convincingly break below the support area around 6.00 towards the 5.6968 level.”
“The fall in USD/TRY to an intraday low of 5.8378 will prove very short-lived if the court decides that Brunson must remain in Turkey in a house arrest. Such a verdict would trigger yet another sharp squeeze in USD/TRY towards the August 30 high at 6.8427.”
“We do not have a very strong conviction whether a bearish or a bullish scenario for USD/TRY will unfold as it is extremely difficult to predict the outcome of crucial court hearing on Friday.”
“The stage is set for a sharp move in USD/TRY.”
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