USD/TRY steadies below $14.00 as Turkish lira fades $7.3 billion push, US inflation eyed

• USD/TRY remains sidelined around the highest levels in three weeks.
• CBRT data hints at total market intervention of $7.3 billion during December.
• US jobs report drowned DXY but a recheck keeps Fed hawks on the table.
• Inflation, covid woes test market players amid sluggish start to the key week.

USD/TRY seesaws around $13.80 during a sluggish start to the week. In doing so, the Turkish lira pair extends the previous day’s lackluster moves around a three-week top amid mixed concerns.

That said, the USD/TRY pair traders seem to struggle between the indecision over the Fed’s next move and doubts over the Turkish central bank’s capacity to keep TRY afloat. Also acting as trade barriers are the fears of the coronavirus variant linked to South Africa, namely Omicron, as well as geopolitical tensions surrounding Russia-Ukraine and US-China.

As per the official data from the Central Bank of the Republic of Turkey (CBRT), the Turkish central bank sold around $7.3 billion in domestic currency during December. The big move to propel lira raised doubts among investors fraternity as the Financial Times (FT) said, “Turkey spent more than $7.0 billion on propping up the lira in December, official data showed, as analysts warned that backdoor interventions meant that the true toll of the currency defense was even higher.”

On the contrary, the US Dollar Index (DXY) portrayed the biggest daily loss in six weeks after the December month jobs report failed to impress Fed hawks, recently up 0.10% near 95.80.

While Friday’s DXY slump could be linked to the mixed US jobs report, the latest consolidation seems to take clues from the future market bets suggesting nearly 80% chances of Fed’s rate hike in March. That said, the headline US Nonfarm Payrolls (NFP) disappointed markets with 199K figures for December versus 400K forecasts and 249K prior (upwardly revised from 210K). However, the Unemployment Rate dropped to 3.9% compared to 4.1% market consensus and 4.2% in November while the U6 Underemployment Rate that fell to 7.3% against November's downwardly revised 7.7%, both closing in the pre-pandemic levels.

Elsewhere, US-China tussles continue, recently over trade and the human rights issues, while the Russia-Ukraine matter gains major attention ahead of this week’s Washington-Moscow meeting, which in turn challenge the market sentiment.

It should be noted that the record top covid infections in Turkey, with the latest daily infections being 68,413, also challenge the USD/TRY bears.

Looking forward, risk catalysts may entertain USD/TRY traders but major attention will be given to Wednesday’s US Consumer Price Index (CPI) and Friday’s US Retail Sales for fresh impulse.

Read: Inflation and geopolitics in the week ahead

Technical analysis

Friday’s bearish Doji at multi-day high signals USD/TRY pullback towards the 21-DMA level of $13.33. However, any further downside will make the quote vulnerable to drop towards 38.2% Fibonacci retracement of December 20-23 downside, near $12.15.

Meanwhile, further recoveries remain elusive until the quote rises past December 21 top surrounding $14.15. Following that, the $15.00 threshold and $17.20 may test the USD/TRY bulls before directing them to the last month’s high, also the record top, around $18.35.