USD/TRY looks set to reclaim 27.00 with eyes on Fed, CBRT Quarterly Inflation Report

• USD/TRY edges higher after snapping two-day losing streak the previous day.
• CBRT’s below-forecast rate increases lure Lira sellers, inflation woes will be crucial to watch in key report.
• US Dollar positions for Fed, bearish bets on greenback jump to record high and flag fears of witnessing positive surprise.

USD/TRY remains sidelined below the 27.00 round figure amid early Monday morning in Europe. In doing so, the Turkish Lira (TRY) pair struggles to defend the previous day’s recovery moves amid a sluggish session ahead of the preliminary reading of the US PMIs for July.

That said, mixed concerns about the Turkish inflation positions and the US Dollar’s ability to defend the previous week’s rebound from a multi-month low prod the USD/TRY pair as traders await top-tier data/events.

It should be noted that the Turkish Lira (TRY) failed to cheer the Central Bank of the Republic of Türkiye’s (CBRT) 2.5% interest rate hike to 17.5%, versus market forecasts of 20.0%. Also likely to have helped the TRY buyers was the news that Saudi Arabia and the UK brace for major business deals with Ankara. However, the TRY remains pressured amid economic fears and concerns surrounding the CBRT’s inability to tame the inflation woes.

On the other hand, the US Dollar Index (DXY) flirts with the intraday low near 101.00 as it retreats from the highest level in eight days while portraying the market’s cautious mood. With this, the greenback’s gauge versus six major currencies prints the first daily loss in five, after reversing from the lowest levels since April 2022 in the last week.

The DXY bounced off the multi-month low the last week as the US housing numbers and regional manufacturing indices were mostly downbeat but an improvement in the Retail Sales Control Group for June defended the Fed hawks. Previously, the upbeat prints of the University of Michigan’s (UoM) Consumer Sentiment Index and consumer inflation expectations for July helped the greenback to challenge the bearish bias.  It’s worth noting, however, that the US Consumer Price Index (CPI) and Producer Price Index (PPI) for June joined the first below-expectations Nonfarm Payrolls (NFP) in 15 months to tease the Federal Reserve’s (Fed) policy pivot past July and drowned the US Dollar.

It should be observed, however, that Bloomberg quotes the US Commodity Futures Trading Commission (CFTC) data for the week ended on July 18 to state that Asset managers boosted bearish dollar bets to a record amid speculation slowing US inflation will hasten the end of the Federal Reserve’s 16-month run of policy tightening.

Even so, the US Dollar bulls remain hopeful as the last comments from the Fed policymakers ahead of the silence period were hawkish. Moving on, the preliminary readings of the US S&P Global PMIs for July will direct intraday moves of the USD/TRY pair ahead of the key Federal Reserve (Fed) monetary policy meeting announcements. Also important to watch are the first readings of the US second-quarter (Q2) 2023 Gross Domestic Product (GDP) and Quarterly CBRT Inflation report.

Technical analysis

Although the RSI conditions prod USD/TRY bulls from crossing the 27.00 round figure, a one-month-old rising support line, close to 26.85 by the press time, restricts the short-term downside of the Lira pair.