USD/TRY looks bid, climbs to 4-day highs near 13.60

• USD/TRY adds to the recent upside momentum.
• The stronger dollar weighs on the EM FX space.
• Turkey 10y bond yields sink to multi-week lows.

The Turkish currency depreciates further and motivates USD/TRY to advance to new tops near 13.60 on Tuesday.

USD/TRY up on dollar gains, geopolitics

USD/TRY trades with decent gains for the third session in a row in the first half of the week, always amidst the strong rebound in the US dollar and persistent jitters stemming from the Russia-Ukraine front.

The offered stance in the lira seems to have accelerated after finmin N.Nebati said on Monday that around $10B in FX bank deposits could be converted to the Turkish currency, all following last week’s parliamentary decision that gains from such deposits will be exempt from corporate income tax.

It is worth recalling that the Erdogan Administration announced in late December a time-deposit scheme that compensates depositors for losses in case the lira depreciates during the duration of the deposit.

That announcement, coupled with increased FX intervention by the Turkish central bank (CBRT), forced USD/TRY to quickly abandon the area of all-time highs near 18.30 (December 20) and to drop to as low as the vicinity of the psychological 10.00 mark,

where solid contention emerged eventually.

In the calendar, Turkey’s Capacity Utilization eased a tad to 77.6% in January (from 78.7%) and the Manufacturing Confidence improved to 109.5 in the same month (from 106.1).

What to look for around TRY

The pair keeps the multi-session consolidative theme well in place, always within the 13.00-14.00 range. The range bound stance appears reinforced by the recent steady hand by the Turkish central bank, while skepticism keeps running high over the effectiveness of the 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 pressure for the time being.

Key events in Turkey this week: Capacity Utilization, Manufacturing Confidence (Tuesday) – Economic Confidence Index (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. Earlier Presidential/Parliamentary elections?

USD/TRY key levels

So far, the pair is advancing 0.63% at 13.5217 and a drop below 12.7523 (2022 low Jan.3) would expose 10.2027 (monthly low Dec.23) and finally 9.8039 (200-day SMA). 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).