USD/TRY resumes upside near 13.60 amidst cautious trading

The Turkish lira resumed its depreciation on Thursday and is seen pushing USD/TRY to the 13.60 region on Tuesday.

USD/TRY remains capped by 14.00

USD/TRY is regaining some upside traction in line with the bullish sentiment surrounding the greenback and is managing to reverse two consecutive daily pullbacks, on Tuesday.

The US dollar extended the recovery following last week’s new lows vs. its main peers, on the back of firm expectations of a Fed’s move on rates as soon as in March and the persistent move higher in US yields.

Cautiousness among investors has been rising over past weeks, as the Turkish central bank will meet on Thursday, with the consensus among market participants pretty divided on what could be the next move by the central bank.

What to look for around TRY

The pair seems to have moved into a consolidative phase within a 13.00-14.00 range since the beginning of the new year. Higher-than-expected inflation figures released earlier in 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: CBRT Meeting (Thursday) – Consumer Confidence (Friday).

Eminent issues on the back boiler: Progress (or lack of it) 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. 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 1.33% at 13.6001 and a drop below 12.7523 (2022 low Jan.3) would pave the way for a test of 12.4787 (55-day SMA) and finally 10.2027 (monthly low Dec.23). On the other hand, the next up barrier lines up at 13.9319 (2022 high Jan.10) followed by 18.2582 (all-time high Dec.20) and then 19.0000 (round level).