USD/TRY drops to multi-day lows near 13.4000

• USD/TRY adds to Friday’s losses and retests 13.3000.
• The softer dollar collaborates with the downside in spot.
• Turkey’s trade deficit widened in December.

The Turkish lira extends Friday’s renewed upside bias and drags USD/TRY to the area of multi-day lows near 13.3000 on Monday.

USD/TRY weaker on USD selling, risk-on

USD/TRY trades on the defensive for the second session in a row at the beginning of the week following the broad-based risk-on environment as well as the offered stance in the US Dollar.

Indeed, better-than-expected Manufacturing PMI in China for the current month and published over the weekend lent support to the risk-associated universe at the beginning of the week, supporting the demand for lira as well as the rest of the EM FX space.

In the meantime, the pair continues to move within a consolidative mood, which kicked in with the new year and after investors seem to have digested the government’s FX-protected lira deposits scheme (announced in late December).

In the domestic docket, December’s trade deficit widened to $6.79B, with exports rising 22.2% and imports expanding 23.2%. Further data saw tourism income increasing 95% to $7.631B during the October-December period.

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: Manufacturing PMI (Tuesday) - January CPI, Producer Prices (Thursday).

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 retreating 1.11% at 13.3991 and a drop below 12.7523 (2022 low Jan.3) would expose 10.2027 (monthly low Dec.23) and finally 9.9082 (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).