USD/TRY looks consolidative below 14.00

• USD/TRY remains capped by the 14.00 hurdle.
• Turkey 10y yields edges higher to the 23.70% region.
• Turkey’s Current Account recorded a $2.68B deficit.

The Turkish lira gives away part of the recent gains and pushes USD/TRY back to the proximity of 13.90 on Tuesday.

USD/TRY: Upside still limited around 14.00

Trading range in USD/TRY has diminished considerably in the last sessions, while occasional bullish attempts in the spot remain well limited around the 14.00 neighbourhood for the time being.

The ongoing range bound theme in the lira comes in tandem with the persistent march higher in yields of the key Turkey’s 10y bond, which navigate record highs around 23.70%.

In the domestic calendar, Turkey’s Current Account slipped back into a $2.68B deficit in November. In addition, the Construction Cost Index rose by 48.87% YoY also in November and 7.94% vs. the previous month.

What to look for around TRY

The ongoing recovery in the pair seems to have met an initial tough resistance in the 14.00 area so far. The higher-than-expected inflation figures released at the beginning of the year put the lira under extra pressure in combination with some cracks in the confidence among Turks regarding the government’s recently announced plan to promote the de-dollarization of the economy. In the meantime, 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 and (very) negative real interest rates are forecast to keep the domestic currency under intense pressure for the time being.

Key events in Turkey this week: Current Account (Tuesday) - Industrial Production (Thursday).

Eminent issues on the back boiler: Progress (or lack of it) of the government’s 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. Earlier Presidential/Parliamentary elections?

USD/TRY key levels

So far, the pair is gaining 0.49% at 13.8429 and a drop below 12.7523 (weekly low Jan.3) would pave the way for a test of 12.1247 (55-day SMA) and finally 10.2027 (monthly low Dec.23). On the other hand, the next up barrier lines up at 13.9319 (YTD high Jan.10) followed by 18.2582 (all-time high Dec.20) and then 19.0000 (round level).