USD/TRY: The hunt for the 18.00 barrier remains well in place

• USD/TRY clinches new 2022 highs just below 18.00.
• Türkiye inflation extended the upside in July at 79.60% YoY.
• Producer Prices also came on the strong side in July.

The Turkish lira extends the weekly depreciation vs. the greenback and lifts USD/TRY to new YTD tops around 17.97 on Wednesday.

USD/TRY up on elevated July CPI

USD/TRY adds to Tuesday’s gains and trades at shouting distance from the key hurdle at the 18.00 mark midweek.

The selling bias in the lira intensified after inflation figures tracked by the CPI rose 79.60% in the year to July, the fastest pace in the last 24 years. The CPI print, however, was lower than what consensus was expecting and remained propped up by elevated energy and commodity prices.

In addition, the Core CPI rose 61.69% YoY and Producer Prices surged 144.61% over the last twelve months.

What to look for around TRY

The upside bias in USD/TRY remains unchanged and stays on course to revisit the key 18.00 zone.

In the meantime, the lira’s price action is expected to keep gyrating around the performance of energy prices, which appear directly correlated to developments from the war in Ukraine, the broad risk appetite trends and the Fed’s rate path in the next months.

Extra risks facing the Turkish currency also come from the domestic backyard, as inflation gives no signs of abating, real interest rates remain entrenched in negative figures and the political pressure to keep the CBRT biased towards low interest rates remain omnipresent. In addition, there seems to be no Plan B to attract foreign currency in a context where the country’s FX reserves dwindle by the day.

Key events in Türkiye this week: Inflation Rate, Producer Prices (Wednesday).

Eminent issues on the back boiler: FX intervention by the CBRT. 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. Structural reforms. Presidential/Parliamentary elections in June 23.

USD/TRY key levels

So far, the pair is gaining 0.08% at 17.9425 and faces the immediate target at 17.9658 (2022 high August 3) seconded by 18.2582 (all-time high December 20) and then 19.00 (round level). On the other hand, a breach of 17.1903 (weekly low July 15) would pave the way for 17.0474 (55-day SMA) and finally 16.0365 (monthly low June 27).