USD/TRY: All eyes on CBRT Interest Rate Decision as lira pokes record low near $11.00

• USD/TRY remains on the front foot around all-time high during the eight-day uptrend.
• Turkish President Erdogan pushes for low interest rates.
• CBRT is expected to cut 100 bps off the benchmark rate but bears may not be welcomed.
• Options market suggests receding bullish bias ahead of the key event.

USD/TRY grinds higher around $10.90 after refreshing the all-time peak with $10.98 level during early Thursday. In doing so, the Turkish lira (TRY) pair portrays the cautious sentiment ahead of the key interest rate decision from the Central Bank of the Republic of Turkey (CBRT).

Ahead of the CBRT decision, Turkish President Recep Tayyip Erdoğan marked a push towards a rate hike while terming higher interest rates as the cause of the inflation. “Erdogan said he would lift the interest rate burden from people and urged businesses to take advantage of aggressive monetary easing since September to invest, hire and export goods,” per Reuters.

The Turkish leader has already pushed the CBRT towards 300 basis points (bps) of rate cuts since September and is up for more. However, markets seem to have tired of hearing rate cuts from the Turkish central bank and hence have recently portrayed easy bullish bias, as per the options market data.

That said, One-month risk reversal (RR) of USD/TRY, a gauge of calls to puts, retreats to 0.075 after jumping the most since March 23 on Tuesday with 1.175 figures, per the latest data from Reuters.

Moving on, the CBRT is expected to cut the benchmark policy rate from 16% to 15% after announcing a 200 bps of rate cut in the last meeting. Even so, major analysts remain indifferent to the USD/TRY upside. Ahead of the event, TD Securities highlight Turkish President Erdogan’s comments to extend their previous call of a 50 bps rate cut while saying, “Erdogan's comment, however, is reversing this expectation, and so we now see risks towards a larger than 50bp cut. With this in mind, the lira will remain under significant pressure and we don't think the CBRT can endure this stress for much longer, suggesting rate hikes and other emergency currency-support measures are becoming more and more likely in the coming few weeks.”

It should be noted that the Fedspeak and US Jobless Claims, as well as Philadelphia Fed Manufacturing Survey for November, are extra catalysts to watch.

Technical analysis

Although overbought RSI conditions do suggest the pair’s pullback towards the $10.00 threshold, USD/TRY bears will remain cautious until the quote stays beyond an ascending trend line from August 2018, near $9.25 at the latest. That said, October’s top near $9.85 may act as an additional downside filter.