USD/TRY in 3-month lows, approaches the 200-day SMA near 5.56
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USD/TRY in 3-month lows, approaches the 200-day SMA near 5.56

  • USD/TRY drops further to sub-5.57 levels.
  • Turkey Economic Confidence eased to 80.7 in July.
  • US PCE, Consumer Confidence next of relevance.

The upside momentum in the Turkish Lira remains unabated so far this week and is now dragging USD/TRY to fresh multi-week lows in sub-5.5700 levels.

USD/TRY in 3-month lows

The Lira is appreciating further today and is pushing the pair to challenge the lower bound of the multi-session sideline theme prevailing since early July near the critical 200-day SMA just above 5.56.

Market chatter regarding the rising probability of a reduction of interest rates by the Federal Reserve tomorrow continues to support inflows to the Lira and the broader EM FX space.

In addition, shrinking odds of US sanctions against Ankara over the recent purchase of a Russian defence system have been also lending legs to TRY and sustaining the move lower.

In the calendar, Economic Confidence in Turkey dropped to 80.7 for the current month from 83.4 following a decrease in consumer, real sector, services and retail trade confidence indices. Later in the week, Q2 Tourism Revenues, Trade Balance figures, the CBRT Inflation Report and minutes will be published along with July manufacturing PMI.

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 0.50% at 5.5809 and faces the next support at 5.5616 (200-day SMA) followed by 5.2918 (monthly low Mar.29) and then 5.1594 (2019 low Jan.31). On the flip side, a surpass of 5.6644 (21-day SMA) would expose 5.7727 (high Jul.25) and finally 5.7849 (monthly high Jul.8).

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