USD/TRY looks firm, resumes the upside above 13.0000

• USD/TRY fades Monday’s negative session and regains 13.00.
• The lira remains under pressure following CPI results.
• Attention gyrates to the CBRT event later in the month.

The lira gives away part of Monday’s gains and resumes the downside, motivating USD/TRY to advance further north of the 13.00 hurdle on turnaround Tuesday.

USD/TRY: Upside looks limited around 14.00

USD/TRY started the year on a negative note despite the rebound in the dollar and higher-than-expected inflation figures in Turkey published on Monday. Indeed, Turkish headline consumer prices rose 36.08% in the year to December, way above estimates, and along with an also larger-than-forecast rise in Producer Prices.

The post-CPI knee-jerk in the lira was, however, short-lived as the currency managed to regain ground afterwards and end the session with decent gains vs. the buck.

However, Tuesday contemplates a more familiar scenario for the beleaguered currency, which resumes the downward path amidst persistent dollar strength and its impact on the risk complex and the EM FX space.

Tuesday’s depreciation of the lira comes pari passu with the move higher in yields of the 10y reference bond, which hovers past the 23.00% region.

What to look for around TRY

The lira resumed the downtrend while market participants continue to digest the recent inflation figures and the government measures to promote the shift from dollars to the domestic currency. The reluctance of the CBRT to change the (collision?) course and the omnipresent political pressure to favour lower interest rates in the current context of rampant inflation are forecast to keep the lira under intense pressure. That said, another visit to the all-time high north of the 18.00 mark in USD/TRY should not be ruled out just yet.

Eminent issues on the back boiler: Progress (or lack of it) of the new scheme oriented to support the lira. Constant government pressure on the CBRT vs. bank’s credibility/independence. Bouts of geopolitical concerns. Much-needed structural reforms. Growth outlook vs. progress of the coronavirus pandemic. Potential assistance from the IMF in case another currency crisis re-emerges.

USD/TRY key levels

So far, the pair is gaining 2.55% at 13.3536 and a drop below 12.9953 (weekly low Jan.3) would pave the way for a test of 11.7343 (55-day SMA) and finally 10.2027 (monthly low Dec.23). On the other hand, the next up barrier lines up at 13.8967 (weekly high Jan.3) followed by 18.2582 (all-time high Dec.20) and then 19.0000 (round level).