USD/TRY: Ready to refresh yearly top near 18.30, CBRT vs. Fed divergence in focus

• USD/TRY grinds higher amid a sluggish start to the key week.
• Inflation woes, CBRT inaction contrasts with firmer US data, hawkish Fed bets to keep buyers hopeful.
• Light calendar, off in Japan/UK restrict intraday moves.

USD/TRY picks up bids to reverse Friday’s corrective pullback around 18.28 heading into Monday’s European session. In doing so, the Turkish lira (TRY) justifies the broad US dollar strength ahead of Wednesday’s Federal Open Market Committee (FOMC). Also keeping the pair buyers hopeful are concerns surrounding the Central Bank of the Republic of Türkiye (CBRT).

Firmer US data and the Fed’s readiness to tame inflation underpins the hawkish bias of the markets towards the central bank’s next move, which in turn underpin the US dollar’s strength.

University of Michigan's preliminary readings of Consumer Sentiment for September came in at 59.5, up from 58.6 in the prior month while easing below 60.0 market forecasts. With the firmer US data, the odds of the Fed’s 75 basis points rate hike (bps) rose to d 82% by the press time while the market’s expectations of a full one percentage increase in the Fed rate rose to 18%.

On the contrary, the CBRT remains intact despite the record high inflation numbers and hence keeps the USD/TRY bulls hopeful.

It should be noted that the headlines surrounding China and Ukraine sour the sentiment amid off in the UK and Japan. The same helps the US Dollar Index (DXY) to reverse Friday’s pullback.

That said, US President Biden said, “I'm more optimistic than I have been in a long time.” The national leader also stated that they are going to get control of inflation. On the same line are the covid updates from China as it unlocks Dalian and Chengdu cities while witnessing zero coronavirus cases in Beijing and one, versus zero the previous day, outside Shanghai’s quarantine zone. However, US President Biden’s readiness to back Taiwan in case China attacks Taipei and the hawkish hopes for the Fed seem to favor the pair buyers ahead of the key monetary policy announcements. On the other hand, Ukrainian Nuclear Energy Coporation recently mentioned, per Al-Jazeera news, “Russian attack caused damage to power supply lines at the Pevdinokrainsk plant.”

Amid these plays, the S&P 500 Futures print mild losses while tracking Wall Street’s Friday close. It should be noted that the off in Japan restricts the bond moves in Asia but the yields are sturdy near the multi-day high amid recession fears and hawkish Fed expectations.

Moving on, the expectations of higher rates from the Fed contrasts with the likely inaction by the CBRT to keep USD/TRY bulls hopeful.

Technical analysis

Higher high formation joins the USD/TRY pair’s successful trading above the 10-DMA immediate support, around 18.25 by the press time, keeping buyers hopeful.