USD/TRY bulls poke record high near 26.35 despite Turkish-Saudi deals, US data, CBRT eyed

• USD/TRY prints three-day uptrend around the all-time peak, grinds higher of late.
• Turkish President Erdogan visits Saudi Arabia, signs deals of defense, energy, etc., UK also braces for trade deal with Ankara.
• CBRT braces for another heavy rate hike to tame inflation woes after the previous disappointment.
• US Retail Sales, Industrial Production will guide intraday moves.

USD/TRY bulls flirt with the record peak of around 26.35 heading into Tuesday’s European session, up for the third consecutive day. In doing so, the Turkish Lira (TRY) pair struggles to justify the headline surrounding the trade deal between Saudi Arabia and Turkiye, as well as fail to cheer the US Dollar weakness, amid a sluggish session. That said, the quote’s latest run-up could be linked to the market’s preparations for today’s US Retail Sales and Industrial Production for June, as well as Thursday’s monetary policy decision of the Central Bank of the Republic of Türkiye (CBRT).

Turkish President Tayyip Erdogan is in Saudi Arabia on Tuesday and gets a warm welcome from Saudi Crown Prince Mohammed bin Salman as both leaders have signed multiple deals for energy, defense and direct investments, etc. during the diplomatic gathering.

Saudi Arabia signed two contracts with Turkish defense firm Baykar to buy drones "with the aim of enhancing the readiness of the Kingdom's armed forces and bolstering its defense and manufacturing capabilities," Saudi Defence Minister Prince Khalid bin Salman said in a tweet on Tuesday, reported Reuters.

On the same line, the UK also showed readiness to deepen its trading ties with Ankara. “Negotiations on an updated free trade agreement are expected to begin in 2024 after the two countries announced that there was scope to improve the existing trade deal,” stated the UK Independent.

It should be noted that the markets brace for another bumper rate hike from the CBRT during its Interest Rate Decision on Thursday. As per the latest Reuters poll, Turkey's central bank is expected to raise its policy rate by 500 basis points (bps) to 20% this week, a Reuters poll showed on Monday, making good on its pledge of further tightening with another sharp hike to curb inflation which is set to rise again.

Further, US Dollar Index (DXY) drops to 99.76 while reversing Friday’s corrective bounce off the lowest level since April 2022 as the previous day’s US statistics fail to inspire Fed hawks even as the July rate hike is already given. That said, New York (NY) Empire State Manufacturing Index for July eased to 1.1 from 6.6 prior and 0.0 market forecasts. The data failed to inspire the US Dollar Index (DXY) sellers initially before weighing on the DXY, probing Friday’s recovery backed by the upbeat prints of the University of Michigan’s (UoM) Consumer Sentiment Index and consumer inflation expectations for the said month.

It’s worth noting that the market sentiment appears mildly positive and prods the US Dollar, as well as the USD/TRY bulls.

Moving on, US Retail Sales for June, expected to rise to 0.5% versus 0.3% prior, as well as the Industrial Production for the said month, expected -0.1% versus -0.2% prior, may entertain the USD/TRY traders ahead of Thursday’s CBRT Interest Rate Decision.

Technical analysis

While the 10-DMA level surrounding 26.15 puts a floor under the USD/TRY prices, the monthly low of around 25.20 appears the key to the bear’s entry. Meanwhile, the all-time peak surrounding 26.37 may prod the pair buyers on their way to the 30.00 psychological magnet.