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USD/TRY has been trading in a range between 6.69 and 6.84 since May 27 and the Credit Suisse analyst team expect a decline to the 6.60-6.65 area as a number of lira-supportive factors are in play.

Key quotes

“Our short-term bias is to expect a decline to the 6.60-6.65 area as long as the EM FX complex does not switch into a bearish mode. The performance divergence between TRY and other EM currencies since late May looks to us too big to be justified by negative lira-triggers such as the rally in oil prices or a decline in Turkish state banks’ FX sales.”

“The on-going decline in EM FX-implied volatility across the world should in principle benefit the lira more than many other high-yielders that offer lower carry than the lira does.”

“Markets do not have Turkey-specific geopolitical issues to be heavily focused on in the short run.”

“The fact that Turkish local bonds are about to become eligible for Euroclear trading will likely lead to relatively balanced international flows in the bond market in the future after the recent sizable outflows.”

“A larger rally in the lira that takes USD/TRY to 6.50 would probably require an additional significant country-specific catalyst. The main candidate to play that role is still the possibility of a sizable FX swap line between Turkey and a major central bank but the probability of such an outcome has declined and is small.”


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