USD/TRY struggles to justify CBRT’s fresh ‘liralization’ move above 17.00

• USD/TRY reverses the previous day’s pullback from yearly top.
• CBRT teases increased weigh on TRY assets in collateral pool, Turkish banking watchdog sets maximum maturities for consumer loans.
• US dollar retreat challenges upside momentum, US CPI in focus.

USD/TRY picks up bids to reverse the U-turn from a six-month high, registered the previous day, as traders ignore the Turkish government’s ‘liralization’ efforts. That said, the Turkish lira (TRY) pair rises 0.65% intraday to regain the 17.23 level heading into Friday’s European session.

Central Bank of the Republic of Türkiye (CBRT) joined the national capital market board, banking watchdog and Treasury to announce a slew of measures to defend the TRY earlier in the Asian session. However, fears of heavy inflation and Turkish President Recep Tayyip Erdogan’s push for no rate hikes seem to keep the USD/TRY buyers hopeful.

“Turkey's central bank said on Friday it was increasing the weight of lira fixed assets in the collateral pool, with banks to establish long-term fixed-rate securities in the lira in addition to their foreign currency deposits and participation funds,” said Reuters.

The capital market board also reduced fees to encourage public offerings held in Türkiye whereas the Turkish BDDK banking watchdog said on Thursday, per Reuters, that it had decided to set a maximum 24-month maturity for consumer loans between 50,000 and 100,000 lira and a maximum 12-month maturity for consumer loans over 100,000 lira ($5,814).

Elsewhere, The Turkish treasury and finance ministry said on Thursday it will issue income-indexed domestic bonds for individual investors to encourage Turkish citizens to make savings in lira assets and to broaden the investor base.

On a broader front, the US Dollar Index (DXY) pares weekly gains ahead of the key Consumer Price Index (CPI) data. However, fears concerning China’s covid conditions and faster/heavier rate hikes, as well as their negative economic repercussions, weigh on the market sentiment of late, which in turn challenges the USD/TRY bears.

Looking forward, the US CPI will be crucial to watch for the USD/TRY traders as market expectations suggest no change in the headline figure of 8.5% YoY. However, the White House has already signaled a higher number, which in turn could help the USD/TRY sellers in case of a negative surprise from the data.

Technical analysis

Overbought RSI and an upward sloping resistance line from February, near 17.35, seem to play their roles in challenging the USD/TRY bulls as they stepped back from 17.50. However, bears need validation from May’s peak of 16.46 to retake control.