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The status of a high-yielding currency makes the lira attractive when demand for risky assets is strong but its weak domestic fundamentals leave the TRY vulnerable and particularly sensitive when risk aversion rises, as observed on Monday when global stocks fell from stretched levels. All in all, economists at Rabobank see rebounds in USD/TRY as corrective and expect the pair to continue falling. 

Key quotes

“The downside bias in USD/TRY remains underpinned by high domestic interest rates and a strong pledge from the new economic team to implement market-friendly policies supported by President Erdogan (at least for now). However, sentiment towards the lira can be relatively easy undermined, which can produce sharp rebounds in USD/TRY.” 

“7.50 is the key level to watch at this stage. A break higher would cause a painful squeeze in short USD/TRY positions. Once this corrective phase runs its course, we anticipate USD/TRY to start falling again.”