USD/TRY remains bid and close to the all-time high around 18.25

• USD/TRY comes under pressure after flirting with 18.25.
• The downtrend in the Turkish currency remains unchanged.
• Next of note in the docket comes Monday’s CPI release.

The Turkish lira poked with all-time lows vs. the dollar after USD/TRY briefly rose past 18.25 earlier on Friday’s session.

USD/TRY further upside could retest 20.00… soon

USD/TRY maintains the buying interest for the third session in a row despite faltering just below the all-time peak above 18.25 at the end of the week.

Indeed, the selling bias in the Turkish lira is expected to remain well in place for the foreseeable future and could even gather extra steam in the next periods considering the increasing divergence between the Federal Reserve and the Turkish central bank (CBRT).

Indeed, the dollar is seen firmer vs. the risk complex and the EM FX universe against the current backdrop of rising expectations of extra tightening by the Fed, as inflation in the US economy looks far from abating.

Nothing scheduled in the Turkish docket on Friday, whereas US Nonfarm Payrolls came a tad above estimates at 315K for the month of August. The US Unemployment Rate, in the meantime, crept higher to 3.7%.

What to look for around TRY

The upside bias in USD/TRY remains unchanged and approaches the all-time high around 18.25. The uptrend in spot has been intensified following 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.

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 2023.

USD/TRY key levels

So far, the pair is gaining 0.14% at 18.2187 and faces the immediate target at 18.2574 (2022 high September 2) 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 17.6120 (55-day SMA) and finally 17.1903 (weekly low July 15).