- USD / TRY returns to levels below 8.0000 after previous highs.
- The pair reached daily highs near 8.05, but then fell back.
- The sell-off of the lira shows no signs of improving so far.
The Turkish lira now finds a breather and advances moderately against the dollar, pushing the USD/TRY back to the 7.9000 region on Wednesday.
USD / TRY still faces bullish outlook
After hitting daily highs above 8.0000, USD / TRY is now backing into negative territory as the lira appears to have found new buying interest.
USD / TRY is now reversing two consecutive daily pullbacks after the Turkish currency appears to have found some buyers near 8.0000 on Wednesday.
Following the recent events surrounding the CBRT, the cost of borrowing lira rose to around 1,400% on Tuesday amid the growing exodus of Turkish assets and the desperate need for lira by foreign investors to close positions.
It is worth remembering that after the currency crisis of 2018, local lenders rigorously regulate the amount that can be lent to foreign investors (through swaps). This measure aims to make it extremely expensive to shorten the lira.
What to look for around TRY
Occasional pockets of strength in the Turkish lira should be viewed as temporary only in the current political / monetary context. The new CBRT Governor, S. Kavcioglu, is expected to reverse (eliminate) the shift to a market-friendly approach to monetary policy that was successfully implemented by former Governor N. Agbal in November 2020. Kavcioglu’s appointment by the President Erdogan once again demonstrated who is shaking the monetary cradle in Turkey and will most likely be the prelude to a return to unorthodox / looser monetary policy measures in combination with rapidly rising bets of a balance of payments crisis and a flight of foreign exchange reserves. In this context, it will not surprise anyone to see spot quotes around 10.00 in the coming months.
Key levels
Right now, the pair is shedding 0.22% at 7.9270 and a drop below 7.7772 (March 9 high) would target 7.4394 (200-day SMA) and then 7.1856 (March 19 monthly low). On the other hand, the next barrier emerges at 8.2881 (maximum of March 22, 2021) followed by 8.5777 (historical maximum of November 6, 2020) and finally 9.0000 (psychological level).
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