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  • USD/TRY’s upside run out of steam ahead of 8.4000.
  • CBRT’s Kavcioglu advocated for the tight monetary stance for now.
  • The One-Week Repo Rate will be the main tool of monetary policy.

The Turkish lira depreciated to as low as the vicinity of 8.4000 vs. the dollar during early trade, although it regained some composure afterwards and dragged USD/TRY to the current 8.3000 region.

USD/TRY still looks to the CBRT

USD/TRY now struggles for direction after meeting some resistance in the 8.4000 neighbourhood earlier on Wednesday, challenging at the same time to halt the so far 4-day positive streak.

Investors, in the meantime, keep the negative view on the lira unchanged amidst escalating speculations of the resumption of the loose stance by the Turkish central bank (CBRT) as soon as at its next meeting in April.

Still around the CBRT, Governor Kavcioglu said the central bank expects to keep the status quo around monetary conditions, while he confirmed the One-Week Repo Rate to be the main monetary policy tool amidst the renewed pledge to bring down inflation to the bank’s 5% target.

Earlier in Turkey, the trade deficit widened to $3.30 billion in February and the Economic Confidence Index improved to 98.90 in March (from 95.80).

What to look for around TRY

The near-term outlook for the lira remains fragile to say the least. The new CBRT Governor S.Kavcioglu is expected to reverse (wipe out) the shift to a market friendly approach of the monetary policy that was successfully implemented by former Governor N.Agbal back in November 2020. President Erdogan’s appointment of Kavcioglu demonstrated once again whose hand is rocking the monetary cradle in Turkey and will most likely be the prelude of the return to unorthodox/looser measures of monetary policy in combination with rapidly rising bets of a balance of payments crisis and a drain of FX reserves. Against this backdrop, it will surprise nobody to see spot trading around 10.00 in the months to come.

Key events in Turkey this week: March’s Manufacturing PMI (Thursday).

Eminent issues on the back boiler: Potential US/EU sanctions against Ankara. Government pressure on the CBRT vs. bank’s credibility/independence. Bouts of geopolitical concerns. Much-needed structural reforms. Growth outlook vs. progress of the coronavirus pandemic.

USD/TRY key levels

At the moment the pair is retreating 0.07% at 8.3027 and a drop below 7.7772 (high Mar.9) would aim for 7.4724 (200-day SMA) and then 7.1856 (monthly low Mar.19). On the upside, the next up barrier is located at 8.4526 (2021 high Mar.30) seconded by 8.5777 (all-time high Nov.6 2020) and finally 9.0000 (round level).