USD/TRY stays offered, meets support around 8.6000

  • USD/TRY extends the downside to the 8.6000 area.
  • The softer tone in the dollar favours inflows into EM FX.
  • A rate cut this month looks increasingly unlikely.

The Turkish lira appreciates further vs. the dollar and drags USD/TRY to the 8.6000 region, where some decent support emerged.

USD/TRY remains under pressure

Despite the second session posting gains, the lira remains well under pressure and bets for USD/TRY to climb further to the 9.00 yardstick remains well on the rise.

The softer tone in the dollar helps the EM FX space to grab some firmer footing, lending legs at the same time to the beleaguered lira.

Recent lower-than-expected inflation figures in Turkey adds to the view that inflation could have peaked in April and it also seems to have opened the door to an imminent interest rate cut by the Turkish central bank (CBRT).

Despite this scenario is preferred by President Erdogan, it does not look favoured for the time being, as it could trigger another currency crisis (among other catastrophes) at a time when the country is struggling to leave the pandemic behind and return to the growth path.

What to look for around TRY

The outlook for the Turkish lira continues to deteriorate almost on a daily basis, as rumours of interest rate cuts keep running in the background and remain supported by the Erdogan’s administration. Despite inflation appears to have peaked in April, it still remains (very) high and a move on rates at the June meeting seems to have lost some motivation for the time being. In the meantime, political effervescence within the ruling AK Party, the impact of the pandemic on the economic outlook, high unemployment and the so far utter absence of any intentions to implement the much-needed structural reforms remain poised to keep the lira under perseverant pressure.

Key events in Turkey this week: End of Year Inflation, Industrial Production, Retail Sales (Friday).

Eminent issues on the back boiler: Potential US/EU sanctions against Ankara. 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. Capital controls? The IMF could step in to bring in financial assistance.

USD/TRY key levels

So far, the pair is retreating 0.16% at 8.6309 and a drop below 8.2982 (weekly low May 17) would aim 8.1316 (weekly low Apr.29) and finally 7.9937 (monthly low Apr.17). On the upside, the next up barrier is located at 8.7401 (all-time high Jun.2) ahead of 9.0000 (round level).

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