USD/TRY bulls struggle around 18.00 ahead of CBRT Quarterly Inflation Report

• USD/TRY snaps eight-day uptrend around yearly high as US dollar keeps post-Fed losses.
• Fed’s Powell drowned greenback by teasing rate neutrality.
• FOMC matched market forecasts by announcing 0.75% rate hike.
• Flash readings of US Q2 GDP, Turkish Economic Confidence Index should also be eyed for clear directions.

USD/TRY picks up bids to pare early Asian session losses, staying unchanged on a day around 18.00 ahead of Thursday’s European session.

The Turkish lira (TRY) pair’s latest inaction around the yearly top could be linked to the market’s fears of recession, as well as cautious mood ahead of the flash readings of the US Q2 Gross Domestic Product (GDP) Annualized, expected 0.4% versus -1.6% prior. Also restricting the immediate USD/TRY up-moves could be the aftershocks of the Fed’s disappointment.

At home, anxiety ahead of the Central Bank of the Republic of Türkiye’s (CBRT) Quarterly Inflation Report also restricts immediate USD/TRY advances. “Central Bank Governor Sahap Kavcioglu will hold a briefing to present the bank's latest quarterly inflation report, with the inflation forecasts for end-2022 and end-2023 expected to be ratcheted up after annual CPI neared 80% last month,” per Reuters.

On Wednesday, the US Federal Reserve (Fed) matched market forecasts by announcing a 75-bps rate increase. The underlying reason for the pair’s weakness could be attributed to Fed Chairman Jerome Powell’s speech as it signaled that the hawks are running out of fuel. Key comments from the Fed’s Powell were that the rates had reached neutrality, so there won't be any more forward guidance, as well as rates will be decided meeting by meeting.

It should be noted that the wider gap between the short-range bond coupons and the longer-term Treasury yields hints at economic pessimism. The US 10-year Treasury yields dropped nearly four basis points (bps) to 2.78% while the 2-year bond coupons slumped by 2.58% to 2.98% after the Fed’s 0.75% rate hike. Even so, the gap between the key US bond coupons remains the widest since 2000 and in turn hints at the US recession woes. It should be noted that the US 10-year Treasury yield pares recent losses around 2.80% and also remains pressured around 3.00% by the press time.

Moving on, Turkish Economic Confidence for July, prior 93.6, precedes the CBRT’s quarterly inflation report to direct short-term USD/TRY moves. Given the record high inflation in Turkey, as well as CBRT’s refrain from rate hikes, the pair prices may rise further in case the report cites escalating price pressure.

Technical analysis

A two-week-old bullish channel restricts short-term USD/TRY moves between 18.05 and 17.75. That said, overbought RSI hints at the pair’s pullback.