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  • USD/TRY extends the down move to the 5.62 region.
  • CBRT minutes, Inflation Report next of relevance.
  • FOMC event, US Non-farm Payrolls also expected this week.

The Turkish Lira keeps appreciating vs. the greenback at the beginning of the week and is now dragging USD/TRY to daily lows in the 5.62 region.

USD/TRY now looks to FOMC

TRY continues to gain ground as market participants have already digested the recent massive interest rate cut by the Turkish central bank (CBRT). It is worth recalling that the CBRT cut its One-Week Repo Rate by 425 bps to 19.75% on Thursday, exceeding consensus forecasts for 100 bps-300 bps cut.

The CBRT based his move on rates on the solid momentum of tourism revenues and increasing exports, all against the backdrop of a persistent improvement in the domestic current account. Therefore, Governor Uysal started an easing cycle that could well see further rate cuts in the next months.

Later in the week, investors should get more details on the decision as the central bank will publish its minutes from the meeting as well as the Inflation Report on Wednesday.

In addition, traders are expected to closely follow the FOMC event on Wednesday, as the prospect of further easing by the Federal Reserve could lend extra oxygen to the EM FX space.

What to look for around TRY

The Lira is extending the multi-week consolidative theme prevailing since early July, surprisingly digesting quite well the massive interest rate cut by the CBRT last week. Newly appointed Governor M.Uysal appears to have inaugurated an Erdogan-sponsored easing cycle despite how untimely that decision might be in the near term at least. TRY, as well as the rest of the EM FX space, remains supported by expectations of extra monetary stimulus from the G10 central banks, while the ‘hunt for yield’ should also lend wings to the Lira, 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 losing 0.54% at 5.6286 and faces the next support at 5.5971 (low Jul.19) followed by 5.5741 (monthly low Jul.4) and then 5.5619 (200-day SMA). On the flip side, a surpass of 5.7727 (high Jul.25) would expose 5.7849 (monthly high Jul.8) and finally 5.8062 (55-day SMA).