- USD/TRY reverses Monday’s sell off and moves to 5.7000.
- TRY gained ground as US sanctions appears averted”¦for now.
- Turkey key inflation figures due on Wednesday.
The Turkish Lira is giving away part of yesterday’s gains and is now lifting USD/TRY to the area of 5.70, where met some decent resistance.
USD/TRY focused on upcoming CPI results
After bottoming out in new 3-month lows in the 5.64 region at the beginning of the week, spot has regained some poise and briefly tested the 5.70 neighbourhood during early trade on renewed USD-strength and a pick up in risk aversion.
TRY started the week on a positive note amidst rising optimism after a constructive meeting between President Trump and R.Y.Erdogan at the G-20 event, dissipating speculations of US sanctions over the purchase of the S-400 Russian missile defence system.
Later on Wednesday, TRY should remain under scrutiny in light of the publication of inflation figures for the month of June, with all the attention on the probable continuation of the downtrend in domestic consumer prices.
What to look for around TRY
Recently, the CBRT left no doubts it will continue to support the current tight monetary conditions. However, the enduring disinflation process seen in past months opens the door to a potential shift from the central bank to a more accommodative stance, including the palpable chance of rate cuts despite this move on rates appears untimely in the near (and medium) term. In this regard, upcoming inflation figures (Wednesday) should be key. On the positive view, TRY could gain some support along with the rest of the EM FX space in response to the recent shift of the Federal Reserve to a more dovish view on it monetary conditions and the US-China trade truce. Still, the country needs to implement the much-needed structural reforms (announced in April) to bring in more stability and start a serious recovery in both economic activity and credibility.
USD/TRY key levels
At the moment the pair is gaining 0.29% at 5.6639 and faces the next hurdle at 5.7085 (100-day SMA) followed by 5.8307 (38.2% Fibo retracement of the 2019 rally) and finally 5.9326 (monthly high Jun.14). On the other hand, a breakdown of 5.6247 (low Jul.1) would aim for 5.5904 (200-day SMA) and then 5.3918 (78.6% Fibo retracement of the 2019 rally).
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