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  • USD/TRY stays on the defensive so far this week, tests the 5.56 area.
  • CBRT’s Uysal said tight monpol reduced inflation outlook.
  • Turkey manufacturing PMI eased to 46.70 in July.

The Turkish Lira keeps the bid tone unchanged so far this week, motivating USD/TRY to test fresh lows near the 5.5600 level earlier in the session, just to rebound soon afterwards.

USD/TRY on the defensive despite FOMC, CBRT

The pair  is adding to yesterday’s gains following the better tone in the buck in the wake of the FOMC event.

The Lira keeps the firm tone unabated despite the Turkish central bank (CBRT) reduced its One-Week Repo Rate by a massive 425 bps last week, taking the key rate to 19.75%. The rate cut was the largest since 2002.

Reinforcing this view, and at the bank’s Inflation Report published yesterday, Governor M.Uysal revised lower the projections for inflation and left the door open for extra rate cuts in the next months. In fact, the central bank now sees consumer prices rising between 11.5% and 16% on a yearly basis by year-end, while it left unchanged the forecasts for 2020 at 8.2% and 2021 at 5.4%.

In the domestic docket and earlier today, the Turkish manufacturing PMI dropped to 46.7 for the month of July. Later in the NA session, the ISM Manufacturing will be in the limelight in the US calendar.

What to look for around TRY

The Lira is extending the multi-session leg lower so far this week, surprisingly digesting very well the large interest rate cut by the CBRT last week. Newly appointed Governor M.Uysal appears to have inaugurated an Erdogan-sponsored easing cycle. Whether this move was untimely (as regarded before the rate cut) it remains to be seen. In the meantime, TRY remains supported by the ongoing ‘hunt for yield’, as domestic rates still look attractive in spite of the recent cut. However, the lack of solid progress on the US-China trade dispute and its negative impact on prospects of global growth carries the potential to spark quick and strong outflows from TRY, undermining the ongoing recovery and threatening at the same time to spark another crisis in the currency. On the more macro view, the country needs to implement the much-needed structural reforms (announced in April) to bring in more stability to the currency and sustain a serious recovery in both economic activity and credibility.

USD/TRY key levels

At the moment the pair is up 0.08% at 5.5901 and a surpass of 5.6587 (21-day SMA) would expose 5.7727 (high Jul.25) and finally 5.7849 (monthly high Jul.8). On the downside, the next support lines up at 5.5151 (low Jul.31) followed by 5.2918 (monthly low Mar.29) and then 5.1594 (2019 low Jan.31).