USD/TRY extends the choppy trade still in the sub-18.00 area

• USD/TRY records decent gains just below the 18.00 mark.
• The pair is expected to remain cautious ahead of US NFP.
• The CBRT expects inflation to hit 90% before easing.

The Turkish lira gives away Wednesday’s gains and resumes the downside, lending upside pressure to USD/TRY to the 17.97 level on Thursday.

USD/TRY stays capped by the 18.00 region

USD/TRY extends the consolidative stance in the upper end of the current range just below the 18.00 yardstick on Thursday amidst unclear risk appetite trends and the usual cautiousness among investors in the pre-NFP trade.

In the meantime, the lira remains under scrutiny after inflation figures tracked by the CPI rose to the highest level since September 1998 at nearly 80.0% in July, boosted by high commodity, energy and food prices.

It is worth noting that the Turkish central bank (CBRT) recently revised up its forecast for inflation and now sees consumer prices rising 60.4% by year-end (from 42.8%). Furthermore, the CBRT expects inflation to rise 19.2% by the end of 2023 and 8.8% at some point towards the end of 2024.

The fact that the CPI rose less than expected in July seems to have sparked some optimism in the government after President Erdogan said that consumer prices are expected to slow down to more “appropriate” levels in early 2023, at a time when he stressed that “a price stabilization trend has already started”.

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 and commodity prices - which are 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 (despite rising less than forecast in July), real interest rates remain entrenched in negative figures and the political pressure to keep the CBRT biased towards low interest rates remains 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.

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 0.11% at 17.9360 and faces the immediate target at 17.9694 (2022 high August 4) 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 17.0851 (55-day SMA) and finally 16.0365 (monthly low June 27).