USD/TRY bounces off lows and regains the 13.60 area

• USD/TRY reverses part of the recent pullback to 13.1000.
• Turkey’s Industrial Production expanded 11.4% YoY in November.
• Retail Sales in Turkish gained 1.35 MoM also in November.

After strengthening to the vicinity of the 13.00 mark vs. the US dollar, the Turkish lira now gives away part of those gains and pushes USD/TRY back to the 13.60/70 band on Thursday.

USD/TRY: Upside remains capped by 14.00

USD/TRY appears to have entered into a consolidative phase against the backdrop of increasing cautiousness ahead of the Turkish central bank (CBRT) monetary policy meeting due next week.

In addition, investors remain sceptical about the progress of the protected lira-deposit scheme announced recently. On the latter, the government reported an increase in this kind of deposits in past days.

In the Turkish calendar, Industrial Production expanded at a healthy 11.4% YoY in November and Retail Sales rose 1.3% inter-month and 16.3% over the last twelve months during the same period.

What to look for around TRY

The pair moves within a 13.00-14.00 range so far this year. 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 1.89% at 13.5114 and a drop below 12.7523 (2022 low Jan.3) would pave the way for a test of 12.2628 (55-day SMA) and finally 10.2027 (monthly low Dec.23). On the other hand, the next up barrier lines up at 13.9319 (2022 high Jan.10) followed by 18.2582 (all-time high Dec.20) and then 19.0000 (round level).