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  • USD/TRY recedes to sub-5.60 levels following daily highs.
  • Markets in Turkey will be closed until tomorrow evening.
  • Risk-off sentiment keeps weighing on EM FX space.

The Turkish Lira has regained the downside on Wednesday after USD/TRY closed Tuesday’s session slightly in the negative ground and in levels coincident with the key 200-day SMA around 5.60.

USD/TRY looks to trade, risk appetite

Spot has retreated to the 5.58/5.59 region today – where sits the 21-day SMA – after recording daily highs beyond the 5.61 handle.

The risk-off mood appears to have returned among investors today after the US 2y-10y yield curve has inverted for the first time since 2007. The sharp drop in US yields eroded the initial optimism after the White House delayed the implementation of tariffs on Chinese products.

The persistent down move in yields added upside pressure to the demand for safe havens in detriment to high yielders, propping up at the same time the offered bias around the Lira.

Later in the week, the Turkish labour market report is expected along with Industrial Production figures and Budget Balance results.

What to look for around TRY

The Lira met strong resistance in the 5.45 area so far, or multi-month highs vs. the Greenback. However, the current preference for safer assets in response to the US-China trade war has undermined extra gains in TRY for the time being. On another front, newly appointed Governor M.Uysal appears to have inaugurated an Erdogan-sponsored easing cycle following the recent interest rate cut by the CBRT. Whether this move was untimely (as regarded before the rate cut) it remains to be seen. In the meantime, TRY remains supported by the ongoing ‘hunt for yield’, as domestic rates still look attractive in spite of the recent cut. 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 gaining 0.61% at 5.5901 and a surpass of 5.6347 (monthly high Aug.13) would expose 5.7025 (50% Fibo of the February-May up move) and finally 5.7727 (high Jul.25). On the downside, the next support emerges at 5.4494 (monthly low Aug.8) followed by 5.3918 (78.6% Fibo of the February-May up move) and then 5.2918 (monthly low Mar.29).