USD/TRY extends swing trade, remains below 18.00 area

• USD/TRY posts decent gains just below 18.00.
• The pair is expected to remain cautious ahead of the US NFPs.
• The CBRT expects inflation to reach 90% before relaxing.

Turkish lira trims Wednesday gains and resumes downtrend, pushing up the USD/TRY down to the 17.97 level on Thursday.

USD/TRY remains capped by the 18.00 zone

USD/TRY extends the consolidated stance at the upper end of the current range just below 18.00 on Thursday, amid unclear trends in risk appetite and usual caution among investors in pre-NFP trading.

Meanwhile, the lira remains in the spotlight after CPI inflation numbers surged to the highest level since September 1998, at nearly 80.0% in July, fueled by high commodity prices, energy and food.

It should be noted that the Turkish central bank (CBRT) has recently revised its inflation forecasts and now sees a consumer price increase of 60.4% by the end of the year (from 42.8%). Additionally, the CBRT expects inflation to rise to 19.2% by the end of 2023 and 8.8% by the end of 2024.

The fact that the CPI rose less than forecast in July appears to have sparked some optimism in the government, after President Erdogan said consumer prices are expected to slow to more “adequate” levels in early 2023. , while underlining that “a price stabilization trend has already begun”.

What to keep in mind around TRY

The bullish bias in USD/TRY remains unchanged and remains on track to revisit the key 18.00 zone.

Meanwhile, the lira is expected to continue oscillating around developments in energy and commodity prices – which are directly correlated to the events of the war in Ukraine – general trends in appetite for risk and the path of the Fed rates in the coming months.

Additional risks facing the Turkish currency also come from within, as inflation shows no signs of abating (despite rising less than expected in July), real interest rates remain entrenched in negatives and political pressure for the CBRT to go for low interest rates remains pervasive. In addition, there does not seem to be a plan B to attract foreign exchange in a context in which the country’s foreign exchange reserves are decreasing day by day.

key levels

So far the pair is gaining 0.11% at 17.9360 and faces the immediate target of 17.9694 (4th Aug high) seconded by 18.2582 (20th Dec all-time high) and then 19.00 (round level). On the other hand, a break of 17.1903 (weekly low Jul 15) would pave the way towards 17.0851 (55-day SMA) and eventually 16.0365 (monthly low Jun 27).