USD/TRY retreats towards $16.70 despite fears of bumper inflation from Turkiye

• USD/TRY traders seek fresh clues around one-week high, probing two-day uptrend.
• Turkish inflation likely to refresh record top for May but no sign of rate hikes keep pair buyers hopeful.
• US Independence Day holiday restricts market moves but recession fears underpin USD demand.
• US CPI for June will be crucial for the day, FOMC Minutes, US jobs report will be eyed for the week.

USD/TRY braces for Turkish inflation data as it snaps a two-day uptrend around the highest levels in a week during early Monday morning in Europe. That said, the Turkish lira (TRY) pair stays pressured around the intraday low near $16.70 by the press time.

TurkStat is up for conveying June’s Consumer Price Index (CPI) data for Turkiye at 07:00 AM GMT. The nation’s inflation number rallied to the all-time high of 73.5% YoY in May. However, President Recep Tayyip Erdogan refrained from rate hikes, as always, while fueling the USD/TRY prices.

However, the recent qualitative moves by the Turkish government appear to have challenged the USD/TRY buyers.

Also, the US holiday and a pullback in the US Dollar Index (DXY) from a two-week high exert additional downside pressure on the pair ahead of the key Turkish data.

Ahead of the day, a Reuters poll mentions that Turkey's inflation is expected to rise above 78% in June and it was seen declining to just below 70% by end-2022. The survey also adds the reason as pricing behavior deteriorates across the board due to a weak currency and a loose monetary policy.

Elsewhere, news suggesting an increase in covid cases in China’s Anhui province joins Russia’s claim of having complete control over Lysychansk to weigh on the market sentiment and probe the USD/TRY bears.

It should be noted that the US ISM Manufacturing PMI for June slumped to the lowest levels in two years on Friday, to 53.0 versus 54.9 expected and 56.1 prior. The details suggested the Employment Index declined to 47.3 from 49.6 and New Orders Index fell to 49.2 from 55.1. Finally, Prices Paid Index dropped to 78.5 from 82.2, versus market forecasts of 81.0. It should be noted that the final readings of the S&P Global Manufacturing PMI for June dropped to the lowest level since July 2020, to 52.7 versus the flash estimate of 52.4 and 57 in May.

Following the data release, ANZ Bank said, “Surveyed data from both PMIs and the US ISM are all pointing to faltering orders growth, lower backlogs of work indices and softer production over the summer. It is hard to escape the growing growth pessimism, which is also fanning expectations of a peak in both inflation and central bank hawkishness.”

Hence, recession fears and cautious sentiment ahead of the key US data/events can keep the USD/TRY on the front foot even if the Turkish CPI manages to surprise traders, which is less likely.

Technical analysis

21-day EMA guards immediate upside of the USD/TRY pair around $16.80 before highlighting the previous support line from early May, near $17.18 by the press time. Alternatively, a May month high near $16.45 could lure the bears during the quote’s further weakness.