USD/TRY drops from Monday’s ‘flash crash’, back around 5.82

• USD/TRY moves lower to the 5.82 area on Tuesday.
• Monday’s ‘flash crash’ saw spot climbing beyond 6.00.
• Turkey Capacity Utilization edged higher in August.

Following Monday’s ‘flash crash’ to levels above the psychological 6.00 the figure, USD/TRY met sellers and it has now receded to the 5.8200 area.

USD/TRY up on trade concerns

The pair is now exchanging gains with losses above the key 5.80 barrier, coming under renewed selling pressure following yesterday’s tops beyond the 6.00 yardstick.

It is worth recalling that spot abruptly broke above the 6.00 barrier on Monday following a sharp pick up in volatility in response to recent escalations in tensions around the US-China trade war.

The sudden up move came in at the beginning of the Asian trading hours and after Japanese investors were caught off guard and thus stopped out amidst the sharp rebound in the Japanese JPY on the back of rising trade jitters.

So far in the Turkish docket, Capacity Utilization ticked higher to 76.6% during August and Manufacturing Confidence improved to 102.5 (from 98.3) during the same period.

What to look for around TRY

The current preference for safer assets in response to the US-China trade war and fears of a technical recession at some point in the next couple of years in the US has undermined extra gains in the Lira. On another front, newly appointed Governor M.Uysal appears to have inaugurated an Erdogan-sponsored easing cycle following the interest rate cut by the CBRT earlier this month. Further moves from the CBRT included the reduction of the RRR in order to boost banks’ lending and give extra oxygen to the economy. In the longer run, however, TRY looks supported by the ‘hunt for yield’, as domestic rates still look attractive in spite of the recent cut. 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 0.06% at 5.8194 and faces the next support at 5.6816 (55-day SMA) followed by 5.5746 (200-day SMA) and then 5.4494 (monthly low Aug.8). On the upside, a surpass of 5.9416 (61.8% Fibo of the May-August drop) would expose 6.0027 (‘flash crash’ Aug.26) and finally 6.1516 (high May 23).