USD/TRY bulls stay hopeful around $13.00 even as yields retreat

• USD/TRY wobbles around record top after rising 12% the previous day.
• Turkish President Erdogan defends rate cuts, oppositions calls darkest ‘catastrophe’.
• Turkey’s Manufacturing Confidence, Capacity Utilization flashed mixed numbers in November.
• DXY eases from 16-month top tracking US Treasury yields ahead of key data/events.

USD/TRY bulls pause around all-time high, easing to $12.95 during early European morning on Wednesday. That said, mixed data from Turkey fails to renew the upside momentum amid cautious optimism in the market weighing on the US dollar bulls.

Turkey’s Manufacturing Confidence eased below 109.6 to 108.4 whereas Capacity Utilization ticked up from 78.0% prior readings to 78.1% during November

The Turkish lira (TRY) pair jumped to the record top the previous day, with the longest daily jump ever, following the dovish comments from Turkey’s President Recep Tayyip Erdoğan. On the same line were hopes the Fed rate hike and firmer US Treasury yields. However, cautious sentiment ahead of the key US Federal Reserve (Fed) monetary policy meeting minutes and Core PCE Inflation data, the Fed’s preferred inflation gauge, probe the pair buyers of late.

Having pushed for 300 basis points (bps) rate cuts in nearly a month, Turkish President Erdogan doesn’t step back from defending the actions, favoring the USD/TRY bulls. “Turkey's lira nosedived more than 15% on Tuesday after President Tayyip Erdogan defended recent rate cuts and vowed to win his "economic war of independence", despite widespread criticism and pleas to reverse course,”

It should be noted that a rebound in the US inflation expectations, as measured by the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, joins firmer Treasury yields to favor the pair buyers. On the same line is US President Joe Biden’s nominations for the Fed Chair and Vice-Chair’s positions, not to forget the covid woes in Europe that underpin the US dollar’s safe-haven demand.

Even so, recently mixed US PMI numbers probe bulls before the key releases. Among them, October month’s Durable Goods Orders, the second estimate of the Q3 US Gross Domestic Product (GDP), the latest FOMC Meeting Minutes and October’s core PCE inflation are important to watch for inflation and growth prospects, as well as to gauge covid woes.

Technical analysis

A downside break of the immediate support line near $12.76 can extend intraday pullback towards the $12.00 threshold. However, USD/TRY bears remain unconvinced until the quote stays beyond October’s top near $9.85.