USD/TRY turns negative, retreats from peaks near 8.0500

The Turkish lira now finds some respite and advances moderately vs. the greenback, pushing USD/TRY back to the 7.9000 region on Wednesday.

USD/TRY still faces upside prospects

Following daily highs above the 8.0000 mark, USD/TRY now recedes to the negative territory as the lira seems to have met some fresh buying interest.

USD/TRY now reverses two consecutive daily pullbacks after the Turkish currency appears to have met some buyers in the vicinity of the 8.0000 yardstick on Wednesday.

Following the recent events surrounding the CBRT, the cost of borrowing liras surged to as high as around 1,400% on Tuesday amidst the rising exodus from Turkish assets and the desperate need for liras by foreign investors in order to close positions.

It is worth recalling that after the currency crisis back in 2018, local lenders severely regulate the amount that can be lent to foreign investors (via swaps). This measure aims at making it extremely expensive to short the lira.

What to look for around TRY

Occasional pockets of strength in the Turkish lira should be seen as temporary only against the current political/monetary backdrop. The new CBRT Governor S.Kavcioglu is expected to reverse (wipe out) the shift to a market friendly approach of the monetary policy that was successfully implemented by former Governor N.Agbal back in November 2020. President Erdogan’s appointment of Kavcioglu demonstrated once again whose hand is rocking the monetary cradle in Turkey and will most likely be the prelude of the return to unorthodox/looser measures of monetary policy in combination with rapidly rising bets of a balance of payments crisis and a drain of FX reserves. Against this backdrop, it will surprise nobody to see spot trading around 10.00 in the months to come.

Key events in Turkey this week: March’s Capacity Utilization (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.

USD/TRY key levels

At the moment the pair is losing 0.22% at 7.9270 and a drop below 7.7772 (high Mar.9) would aim for 7.4394 (200-day SMA) and then 7.1856 (monthly low Mar.19). On the other hand, the next up barrier emerges at 8.2881 (2021 high Mar.22) followed by 8.5777 (all-time high Nov.6 2020) and finally 9.0000 (psychological level).