- USD/TRY breaks through the 18.6000 level and hits new highs.
- The strength of the dollar continues to be the cause of the bullish bias of the pair.
- The lira remains under pressure after the CBTR rate cut.
The Turkish lira depreciates to new historic lows against the dollar and raises the USD/TRY up to the 18.6000 area.
USD/TRY: Next target at 19.00
USD/TRY continues its upward momentum at a glacial pace to the 18.6000 zone at the beginning of the week, thanks to the strong rebound of the dollar and the general risk-off tone in world markets.
In addition, the lira faces persistent headwinds as investors continue to digest the larger-than-expected interest rate cut by the Turkish central bank (CBTR) on October 20, which lowered the repo rate to one week at 10.50%. In its statement, the central bank also left the door open for further rate cuts at upcoming meetings.
Regarding the latter, it should be remembered that President Erdogan advocated a further reduction in interest rates on several occasions, while stressing the need for single-digit rates by the end of the year.
What to look for around the TRY
USD/TRY finally breaks through the key barrier at the 18.6000 area on Monday.
For now, price action around the Turkish lira is expected to continue to revolve around developments in energy and commodity prices – which are directly correlated to developments in the war in Ukraine – broad trends in risk appetite and the path of Fed rates in the coming months.
Additional risks facing the Turkish currency are also coming from within, as inflation shows no signs of abating (despite rising less than expected in the last three months), real interest rates remain well entrenched in negative territory and the pervasive political pressure for the CBTR to move towards a low interest rate policy.
Furthermore, the lira will continue to suffer against the background of Ankara’s plans to prioritize growth by turning the current account deficit into a surplus, always following a recipe for lower interest rates.
USD/TRY Key Levels
So far the pair is gaining 0.34% at 18.6012 and faces the next hurdle at 18.6280 (Oct 24 all-time high), followed by 19.00 (round level). To the downside, a break below 18.2810 (55-day SMA) would expose 17.8590 (weekly low Aug 17) and finally 17.7586 (monthly low).
Source: Fx Street
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