USD/TRY ignores USD pullback around 17.30 as Turkish Credit Default Swaps refresh record high

• USD/TRY remains firmer for the third consecutive day despite DXY retreat from 20-year high.
• Türkiye’s 5-year Credit Default Swaps renew all-time high of 895 bps.
• Turkish Industrial Production recovered but inflation woes, Fed-led chatters favor pair buyers.
• US PPI, risk catalysts may offer immediate directions.

USD/TRY hesitates in portraying the US dollar weakness as it takes rounds to 17.30 ahead of Tuesday’s European session. In doing so, the Turkish lira (TRY) pair justifies the fears among the TRY traders as the country’s Credit Default Swaps (CDS) jump to an all-time high.

That said, Reuters conveyed 29 basis points (bps) of a jump in the 5-year Turkish credit default swaps to a new record high of 854 bps by the end of Monday, quoting S&P Global. The fears of credit default in Türkiye ignore the slump in the April month’s Industrial Production, to 10.8% versus 7.95% expected and 9.8% prior.

The reason for the pessimism surrounding TRY could be linked to the nearly 70% inflation and President Tayyip Erdogan’s rejection of rate hike.

It’s worth noting that the liralization appears to offer intermediate pauses to the USD/TRY uptrend. Recently, the Central Bank of the Republic of Türkiye (CBRT) announced that firms using Turkish lira rediscount credits will be offered longer maturities and must commit to selling at least 30% of their export proceeds to banks, per Reuters.

Elsewhere, a jump in the Fed’s 75 bps rate hike expectations joins China’s covid fears to keep the USD/TRY buyers hopeful.

While Wednesday’s Federal Open Market Committee (FOMC) is the key catalyst for the USD/TRY traders, the US Producer Price Index (PPI) for Apri, expected 10.9% YoY versus 11.0% prior, could entertain intraday traders.

Technical analysis

Unless breaking the resistance-turned-support line from January near 16.50, quickly followed by the 20-DMA support near 16.40, USD/TRY bears remain off the table.

Meanwhile, the upper line of the five-week-old bullish channel, around 17.45, challenges the USD/TRY upside ahead of the yearly top surrounding 17.50.