USD/TRY treads water just below the 18.00 mark

• USD/TRY extends the side-lined trading near 18.00.
• Türkiye Budget Balance showed a TL64B deficit in July.
• The CBRT is expected to keep rates unchanged later in the week.

Further consolidation remains the name of the game in USD/TRY for the time being and always just pips shy of the 18.00 zone.

USD/TRY poised to extend the extra range bound theme

USD/TRY keeps the side-lined mood well in place since late July in the area just below the 18.00 neighbourhood. So far, bulls remained unable to break above that key level, which appears to be strongly reinforced by FX intervention.

Data wise in Türkiye, the Budget Balance deficit more than doubled in July to TL64B, although the focus of attention is expected to be on the Turkish central bank (CBRT) meeting on Thursday. Consensus among investors, in the meantime, keeps pointing to another “on hold” decision by the central bank despite inflation rose near 80% in the year to July.

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.

Key events in Türkiye this week: Budget Balance (Monday) – CBRT Interest Rate Decision (Thursday).

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 0.20% at 17.9569 and faces the immediate target at 17.9874 (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 16.3099 (100-day SMA) and finally 16.0365 (monthly low June 27).