USD/TRY eases from tops near 5.7000

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  • USD/TRY met resistance in the 5.7000 region.
  • Turkey Consumer Confidence dropped to 56.5 in July.
  • The CBRT is expected to cut rates on Thursday.

The Turkish Lira remains on the defensive so far this week, lifting USD/TRY to the 5.70 area although losing some upside impulse soon afterwards.

USD/TRY focused on CBRT decision, US sanctions

Spot is up for the third session in a row on Tuesday, finding quite a decent barrier at the 5.70 area, coincident with the 21-day SMA. On the downside, strong support lies at 5.60 for the time being.

In the meantime, price action around the Lira reflects the nervousness among investors on potential US sanctions against Ankara after the purchase of the Russian missile defense system.

Further concerns around the domestic currency are likely to emerge if the Turkish central bank (CBRT) cut rates at its meeting on Thursday. Consensus among market participants, however, remains pretty divided on the probable rate cut, which ranges between 100 bps and 600 bps.

In the docket, Turkey Consumer Confidence eased a tad to 56.5 in July from 57.6 while Manufacturing Confidence and Capacity Utilization are also due on Thursday.

What to look for around TRY

Despite Governor M.Uysal has already emphasized the independence of the central bank and its commitment to price stability, unease around investors – and the Lira – is likely to gather steam pari passu with the perception that a new easing cycle could be in the offing despite how untimely that decision might be in the near term at least. This likely scenario is supported by the view that President Erdogan (desperately) wants to reactivate the stagnant economy via higher credit from domestic lenders. To do that, he needs lower interest rates, which can spark fresh inflationary pressures, social unrest and most likely another crisis in the currency.

USD/TRY key levels

At the moment the pair is gaining 0.34% at 5.6839 and a surpass of 5.7616 (100-day SMA) would expose 5.7849 (high Jul.8) and finally 5.8371 (55-day SMA). On the other hand, the next down barrier is located at 5.5971 (low Jul.19) followed by 5.5741 (monthly low Jul.4) and then 5.5618 (200-day SMA).

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