USD/TRY advances to 2-day highs near 13.6000

• USD/TRY adds to Tuesday’s gains well above 13.00.
• The lira loses further ground after a positive start of the year.
• Focus remains on the next CBRT event later in the month.

The Turkish lira accelerates losses and pushes USD/TRY to new 2-day highs in the 13.60 region midweek.

USD/TRY stronger after Turkey’s CPI

USD/TRY posts gains for the second day in a row on Wednesday, regaining the upside traction and extending the bounce off Monday’s lows in the 12.70 region.

The lira resumed the downside in past sessions after cracks seem to have turned up in the Turk’s confidence after the government announced a plan to reduce the dollarization of the economy and therefore promote savings in the domestic currency.

In the meantime, the effects of President Erdogan’s rescue plan continue to wear off and the impact on the lira becomes more visible, particularly after inflation in the country rose above 36% in the year to December, the highest level in the last 19 years.

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 1.36% at 13.5339 and a drop below 12.7523 (weekly low Jan.3) would pave the way for a test of 11.8128 (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).