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  • USD/TRY clinched 2-week highs near 5.80 earlier in the day.
  • Erdogan appointed M.Uysal as new CBRT Governor.
  • Unease among investors grows bigger amidst Lira slump.

As expected, TRY has started the week on a very weak footing, sending USD/TRY to fresh 2-week highs in the boundaries of the 5.80 region, just to lose some traction afterwards.

USD/TRY bid on”¦ potential CBRT easing?

TRY has drastically gave away recent gains to the 200-day SMA around 5.5800 vs. the greenback against the backdrop of rising concerns over the independence and credibility of the Turkish central bank (CBRT), all after President R.T.Erdogan removed former CBRT Governor M.Cetinkaya on Saturday.

The omnipresent conflict between Erdogan and Cetinkaya goes way back and has always gyrated around the manifested preference of the government for lower rates vs. the persistent tight monetary conditions carried out by the bank.

Following the news, markets – not without reason – now believe that the beginning of an easing cycle could be in the offing in the short-term horizon. This, at the same time, carries the potential to trigger another crisis in the currency as the immediate consequence”¦ and the Lira knows it”¦

What to look for around TRY

All the looks are now upon the freshly appointed Governor of the CBRT, Murat Uysal, after President Erdogan removed former Governor Murat Centinkaya on Saturday. Uysal is expected to give a press conference at a later date. Despite Uysal already emphasized the independence of the central bank and its commitment to price stability will remain intact, 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 similar to that of August 2018.

USD/TRY key levels

At the moment the pair is gaining 1.80% at 5.7237 and a surpass of 5.7849 (high Jul.8) would expose 5.8932 (55-day SMA) and finally 5.9326 (monthly high Jun.14). On the other hand, the next down barrier lines up at 5.5810 (200-day SMA) followed by 5.5741 (monthly low Jul.4) and then 5.3918 (78.6% Fibo retracement of the 2019 rally).