USD/TRY trades on the defensive around 13.4000

• USD/TRY extends the downside near 13.40 on Monday.
• Turkey’s Budget Deficit jumped to $145.74B in December.
• Attention is on the CBRT event on Thursday.

The Turkish currency adds to Friday’s small gains and manages to keep USD/TRY around the familiar range in the 13.40 region so far on Monday.

USD/TRY cautious ahead of the CBRT

USD/TRY sheds ground for the second session in a row at the beginning of the week, although it remains largely within the range bound theme in place since the new year kicked in.

Moving forward, the pair is expected to maintain the side-lined trading in the next sessions pari passu with increasing cautiousness, as the Turkish central bank (CBRT) will meet on Thursday.

In the domestic calendar, the Turkish Budget Balance showed a record deficit of TL145.74B during last month, largely in response to the combination of increased gas imports, soaring prices of the commodity and the collapse of the lira. That said, the total deficit for 2021 reached TL192.2B.

What to look for around TRY

The pair seems to have moved into a consolidative phase within a 13.00-14.00 range since the beginning of the new year. Higher-than-expected inflation figures released earlier in 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: Budget Balance (Monday) – CBRT Meeting (Thursday) – Consumer Confidence (Friday).

Eminent issues on the back boiler: Progress (or lack of it) of the government’s new scheme oriented to support the lira via protected time deposits. 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 retreating 0.30% at 13.4259 and a drop below 12.7523 (2022 low Jan.3) would pave the way for a test of 12.4060 (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).