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  • The pair fades Friday’s move to 2019 highs beyond 5.80.
  • The 200-day SMA holds the downside so far.
  • All eyes on the municipal elections on Sunday.

After climbing to levels last seen in late October 2018 near 5.85 on Friday, USD/TRY has sparked a correction lower to the current area of weekly lows in the 5.50 region.

USD/TRY focused on local elections

TRY was hit by a wave of selling pressure on Friday in response to a sharp move in FX reserves and after news that FX deposits rose to a record high during the week ended on March 15, all exacerbated by a short-lived panic attack in the EM FX space. The CBRT, however, reacted quickly and suspended the 1-Week Repo Rate auctions, preventing the temporary crisis to escalate further.

This week is seeing some recovery in TRY, dragging spot to as low as the 5.46 region, where sits the critical 200-day SMA, after market chatter was pointing to domestic banks putting through large selling orders of foreign currency.

In the meantime, further bouts of volatility are expected to come and go, as the municipal elections get closer (Sunday).

What to look for around TRY

The Lira is expected to remain under pressure in the near to medium terms despite the sentiment in the risk-associated space and around the EM FX universe has somewhat improved in past weeks. The next key event in Turkey will be the municipal elections (Sunday), considered crucial as the much-need structural reforms are expected to kick in soon afterwards. Furthermore, TRY will remain in the centre of the debate ahead of the elections, as unwelcomed weakness in the currency could prompt an emergency rate hike by the CBRT. This scenario will surely collide with Erdogan’s intentions of lower rates and undermine at the same time the efforts of the economy to recover from the current recession.

USD/TRY key levels

At the moment the pair is losing 0.54% at 5.5152 at faces the next support at 5.4630 (200-day SMA) seconded by 5.4066 (low Mar.20) and then 5.3533 (55-day SMA). On the other hand, a break above 5.6371 (high Jan.3) would expose 5.8413 (2019 high Mar.22) and finally 5.8707 (high Oct.23 2018).