USD/TRY stabilises close to multi-day highs, eyes test of key 7.95-8.00 resistance zone

• USD/TRY saw a sharp retracement higher on Monday, despite positive rhetoric from the head of the CBRT.
• The pair appreciated more than 3% on the day, surging above last week’s highs around 7.80 to settle closer to 7.90.

USD/TRY surged higher on Monday, rallying from Monday Asia session opening levels at 7.6210 as high as 7.9472, before easing back below the 7.9000 level in more recent trade. The pair currently trades with gains of just under 2500 pips on the day or over 3%.

TRY ignores positive CBRT Governor rhetoric

The Turkish Lira saw significant depreciation vs the US dollar on Monday despite seemingly positive comments from the CBRT Governor Agbal; the economic recovery is expected to continue for the rest of the year, albeit at a slower pace, he said, adding that he sees a “quite strong” chance of positive growth in 2020. TRY was not buying it and continued to depreciate vs USD, and has since settled around pre-CBRT rate hike levels of last week (close to 7.9000).

CBRT Minutes from last week’s meeting are incoming on Thursday, as well as the CBRT financial stability report on Friday – TRY bulls will be hoping for a confidence-inspiring message from both (more rate hikes incoming?).

USD/TRY breaks above key downtrend and resistance

Technical buying is likely to played a significant role in USD/TRY advance to the north on Monday, with two key areas of resistance broken.

As European traders arrived at their desks around 06:00GMT on Monday morning, USD/TRY surged above a key short-term downtrend linking the 9 November low and the 12, 17, 18 and 20 highs that, until that point, had been well respected.

As the buying gathered momentum and took the pair above this trend line, which came into play around 7.67, USD/TRY also crashed through a key level of resistance around 7.80 (22 October and 11 November lows, as well as the 17 and 18 November highs). That opened the door for a run at resistance around 7.95 (the 9, 14 and 16 October highs), though sellers managed to regain control just before this level pushing the pair back below 7.90.

Above the 7.95 resistance level, 7.98 is also significant (22 October high and 9 November low), as is of course the psychological 8.00 level. A break above these levels would open up the door for another run at the all-time high just shy of 8.60, although with CBRT credibility seemingly returning now that the central bank has a new governor and is hiking to tackle rampant inflation, TRY’s fundamental backdrop is a little less desperate than it was last time it was at these levels.

Still, it might take a few more decent sized hikes from the CBRT in order to regain enough confidence to send the currency back to the low 7.00s.

USD/TRY four-hour chart