“Looking purely from the perspective of technical analysis, we witnessed a text book correction lower in USD/TRY over the past two weeks after the parabolic move higher earlier in August. At this stage USD/TRY is in a consolidation mode ahead of its next move,” Rabobank analysts note.
Key quotes
“Think of it as climbing Mount Everest. Base Camp is at 5,380m and on the way to the summit at 8,848m there are usually four camps where climbers can rest to regain their strength before resuming ascend to the top of the world. If their first attempt proves unsuccessful, mountaineers retrace to lower base camps before making another bid to reach the summit.”
“If we apply this analogy to USD/TRY, the bulls have retraced from the recent top at 7.2362 to a lower base camp around 6.00. However, it’s too early to declare that they have given up making another attempt to reach 8.00 or even higher levels in the coming weeks. Admittedly, the “climbing” conditions for the bulls have deteriorated after the central bank implemented a backdoor tightening (banks borrow from the CBRT at the overnight lending rate of 19.25% instead of the main policy rate of 17.75%) and the banking regulator made it prohibitively expensive to bet against the lira.”
“The bulls would face more headwinds and at least some of them would immediately capitulate should the diplomatic tension between the US and Turkey ease. For this to take place Turkey would have to release an American pastor. Treasury and Finance Minister Albayrak can also make it difficult for the bulls to reach higher levels if he promptly delivers on his fiscal pledges with focus on the new mid-term programme due to be published in September.”
“Finally, a decisive interest rate hike on September 13 would certainly discourage the bulls from attempting to set another record high in USD/TRY. After spending the last two weeks resting in their camp at 6.00 altitude the bulls may have gathered sufficient strength to resume their climb when Turkey reopens on Monday.”
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