USD / TRY returns above 8, .00 as higher oil prices and ongoing diplomatic tensions weigh on the lira

• Having flirted with the 8.00 level during the European morning on Tuesday, USD / TRY has convincingly surpassed this level to the upside in recent trading.
• Higher oil prices, weak manufacturing data and ongoing diplomatic disputes with the EU are hurting confidence.

The Turkish lira has been on the defensive for the second day, with the USD/TRY moving convincingly above the 8.00 level in recent trade, having leaked with a breakout above this level during the European morning. As things stand at the moment, the pair is trading with gains of almost 1500 pips or 1.8% on the day.

TRY sell off continues amid rising oil prices and ongoing diplomatic disputes

Poor data this morning in the form of a drop in November manufacturing confidence to 103.9 from 108.1 set the negative tone for the day, but TRY investors appear to be focusing more on other issues, such as ongoing diplomatic disputes with the EU as the rise in oil prices.

In the latter, WTI is up almost 5% on the day, reaching its highest levels since March, while Brent is up almost 4% on the day, with the first month’s futures contract climbing towards 48 $ per barrel. – This, of course, has benefited oil exporting nations (BRL, MXN, RUB, CAD, NOK) at the expense of currencies that depend on oil imports, such as TRY.

Meanwhile, the EU and Turkey are discussing an EU military mission, which saw German forces board and search a Turkish freighter they suspected of carrying weapons to Libya illegally. Turkey summoned envoys from the EU, Germany and Italy on Tuesday, and Germany called the Turkish complaints unjustified.

While this mini-episode may be somewhat petty, it serves as a reminder of deteriorating relations with the EU, which consumes 50% of Turkish exports.

Looking ahead, attention is expected to return to CBRT with the release of the Minutes of last week’s rate decision on Thursday. The recently appointed new governor of the CBRT, Naci Agbal, has been talking about a big game on continued monetary tightening to achieve more stable financial conditions, but warned that internal reforms are needed for a sustained appreciation of the TRY.

USD / TRY Overcomes Final Key Technical Hurdle, Opens Door for ATH Test

Rising above the key resistance levels located at 7.90 and also above the key psychological level of 8.00, USD / TRY has technically opened the door for a sustained move back towards all-time highs above 8.50.

Such a move seems unlikely from a fundamental point of view, given Turkish President Erdogan’s recent change of mind regarding economic / monetary policy and the subsequent replacement of the head of the CBRT, which has signaled further increases after the 475bp increase. from last week’s rate.

But technically speaking, very few notable levels of resistance lie between USD / TRY at current levels and the all-time high set on November 6, other than perhaps the November 10 high at 8.39.

To the downside, there is plenty of support at the upper 7.90, then again at 7.90 (Nov 12 high), and then again just below 7.80. TRY bulls expect the pair to eventually rally to last Thursday’s lows at 7.50.

4 hour chart