USD/TRY looks bid and approaches 14.0000

The Turkish lira depreciates further and pushes USD/TRY back to the proximity of the 14.00 hurdle at the beginning of the trading week.

USD/TRY stays capped by 14.00… for now

USD/TRY resumes the upside albeit at a slow pace on Monday, managing at the same time to leave behind Friday’s inconclusive price action.

Despite starting the new year on a positive footing, the lira quickly returned to the normality and depreciated to the vicinity of the 14.00 mark vs. the US dollar in the subsequent sessions, in the usual context of heightened fragility and uncertainty surrounding the next steps of the Turkish central bank, at a time when politics could intensify its pressure on the monetary policy.

Indeed, investors’ attention could shift to the political scenario, where speculation of earlier presidential and parliamentary elections (originally due in late June 2023) seems to have picked up pace against the backdrop of latest poll results showing support to President Erdogan diminished somewhat.

In the domestic calendar, Turkey’s jobless rate stayed unchanged at 11.2% in November, while the employment rate improved a bit to 46.6% in the same period.

What to look for around TRY

The ongoing recovery in the pair seems to have met an initial tough resistance in the 14.00 area so far. The higher-than-expected inflation figures released at the beginning of the year put the lira under extra pressure in combination with some cracks in the confidence among Turks regarding the government’s recently announced plan to promote the de-dollarization of the economy. In the meantime, the reluctance of the CBRT to change the (collision?) course and the omnipresent political pressure to favour lower interest rates in the current context of rampant inflation and (very) negative real interest rates are forecast to keep the domestic currency under intense pressure for the time being.

Key events in Turkey this week: Unemployment Rate (Monday) - Current Account (Tuesday) - Industrial Production (Thursday).

Eminent issues on the back boiler: Progress (or lack of it) of the government’s new scheme oriented to support the lira. Constant 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. Potential assistance from the IMF in case another currency crisis re-emerges. Earlier Presidential/Parliamentary elections?

USD/TRY key levels

So far, the pair is gaining 0.33% at 13.8620 and a drop below 12.7523 (weekly low Jan.3) would pave the way for a test of 12.0478 (55-day SMA) and finally 10.2027 (monthly low Dec.23). On the other hand, the next up barrier lines up at 13.9319 (YTD high Jan.10) followed by 18.2582 (all-time high Dec.20) and then 19.0000 (round level).