USD/TRY tumbles to 6-month lows near 6.9500

The Turkish currency appreciates further and drags USD/TRY to fresh multi-month lows in the sub-7.0000 area on Monday.

USD/TRY now looks to the CBRT

USD/TRY loses ground for the fourth consecutive session and manages to breach the 7.0000 mark for the first time since the summer 2020, always on the back of persistent dollar weakness and rising inflows into the EM FX space.

In fact, the lira follows its EM peers always against the backdrop of the solid improvement in the risk complex and higher oil prices. Furthermore, the lira advances for the fifth consecutive week and extend the positive streak for the fourth month.

Later in the week, the CBRT event will take centre stage seconded in relevance by the Consumer Confidence gauge on Thursday. Earlier on Monday, the Turkish Treasury said the Budget deficit shrunk to TRY 24.15 billion in January (from TRY 40.70 billion).

What to look for around TRY

The lira extends the bull trend and manages to break below the psychological 7.00 support for the first time since August 2020. The (surprising?) stability around the currency comes after the CBRT firmly decided to strongly step in to prevent an imminent crisis of both currency and the Balance of Payments, hiking rates above markets’ expectations and turning to a more orthodox monetary stance back in November 2020. The CBRT kept a steady hand on rates at the January meeting, although it struck quite a hawkish message by emphasizing its commitment to keep a tight monetary policy, always oriented to restore (durable) financial stability and lower inflation figures in the longer run. A big question remains, however, regarding the independence and credibility of the central bank vs. the well-known opinion of President Erdogan when comes to higher interest rates. The lira will closely follow this theme in 2021 along with the Biden’s Administration stance on Turkey, the post-pandemic recovery and occasional bouts of geopolitical effervescence.

Key events in Turkey this week: Consumer Confidence and the CBRT interest rate decision (Thursday).

Eminent issues on the back boiler: Potential US sanctions against Ankara. Government pressure on the CBRT vs. bank’s credibility. Bouts of geopolitical concerns. Much-needed structural reforms. High inflation.

USD/TRY key levels

At the moment the pair is retreating 0.75% at 6.9637 and a drop below 6.9551 (2021 low Feb.15) would expose 6.8796 (monthly low Aug.4 2020) and then 6.6834 (monthly low Jun.3 2020). On the other hand, the next hurdle is located at 7.2257 (21-day SMA) followed by 7.3645 (200-day SMA) and finally 7.5415 (2021 high Jan.18).