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  • USD/TRY advances to four-week highs near 5.75.
  • TRY loses ground after CBRT acted on RRR on Monday.
  • The aim of the CBRT is to increase lending and sustain the economy.

The Turkish Lira is extending the leg lower so far this week and it has lifted USD/TRY to fresh four-week highs near the 5.75 area.

USD/TRY now targets the 100-day SMA at 5.7830

Spot is advancing for the third straight day so far on Tuesday, prolonging the rally after bottoming out in the 5.45 neighbourhood earlier in the month.

Further selling pressure is hitting the Lira after the Turkish central bank (CBRT) announced some changes to its Reserve Requirement Ratio (RRR) on Monday.

In fact, with this measure, the central bank aims to motivate banks to increase lending and lend further support to financial stability, with the ultimately goal being to reinvigorate the economy.

The central bank expects that “approximately TRY 5.4 billion and $2.9 billion equivalent of gold and FX liquidity” are seen returning to the markets.

In the meantime, the Turkish currency has been losing ground as of late in tandem with the rest of the EM FX space on the back the solid momentum in the Greenback and somewhat alleviated concerns over the likeliness of the US economy entering into a recession.

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 and fears of a technical recession at some point in the next couple of years in the US has undermined extra gains in the Lira. 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 1.09% at 5.7173 and a surpass of 5.7478 (monthly high Aug.20) would expose 5.7843 (100-day SMA) and finally 5.7849 (monthly high Jul.8). On the downside, the next support emerges at 5.5653 (200-day SMA) followed by 5.5344 (low Aug.16) and then 5.4494 (monthly low Aug.8).