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  • TRY depreciates to the lowest level this year vs. USD.
  • Spot moves higher to the boundaries of the 5.8800 handle.
  • US-Turkey escalating tensions hurt the Lira.

The Turkish Lira has dropped to the lowest level vs. the greenback during early trade, lifting USD/TRY to the vicinity of the 5.8800 area, although shedding some ground afterwards.

USD/TRY under pressure on potential US sanctions

The pair is advancing for the fifth consecutive day on Wednesday on the back of the more favourable sentiment around the greenback in the global markets and rising speculations of US sanctions.

In fact, the US-Turkey effervescence remains well in place today following the recent purchase of the Russian S-400 missile defence system by Turkey after the US said it could terminate the deal involving US-made F-35 jets.

In addition, Turkey has once again rejected the US policy of imposing unilateral sanctions and President Trump’s plans to terminate waivers for 8 countries – Turkey included – purchasing crude oil from Iran.

It is worth recalling that prices of the European reference Brent crude climbed to fresh 2019 tops near the $75.00 mark per barrel on Tuesday following Trump’s announcement.

What to look for around TRY

The outlook on the Turkish Lira should be under scrutiny in the upcoming months. While the broader sentiment around the EM FX space is expected to influence on TRY, domestic drivers would likely prevail when determining its price action. Among these factors is the ongoing uncertainty around the possibility of a rerun of the mayoral elections in Istanbul, threats of US sanctions over the purchase of a Russian missile defence system and the progress in the implementation of the recently announced structural reforms, conditio sine qua non for the start of a sustainable economic recovery and a return of the confidence in both the currency and the country.

USD/TRY key levels

At the moment the pair is gaining 0.78% at 5.8748 and faces the next up barrier at 5.8770 (2019 high Apr.24) seconded by 6.2277 (monthly high Oct.4 2018) and finally 6.5497 (high Sep.13 2018). On the other hand, a break below 5.8016 (200-hour SMA) would open the door for 5.7094 (low Apr.17) and then 5.5655 (200-day SMA).