Currency Pair of the Week: USD/TRY

USD/TRY may be volatile this week as the markets try and figure out what to make of the new CBRT Governor

FOREX 8

For all that has been said and done over the last few weeks, the US Dollar index (DXY) has been relatively rangebound since the beginning of March.  Despite the extremely dovish FOMC meeting, rising interest rates, and increasing inflation expectations, the DXY has remained between 91.00 and 92.00 since March 4th.  The $1.9 trillion stimulus package has been signed, sealed, and (almost) delivered.  The Fed is determined to keep monetary policy extremely accommodative until they see “actual” data that the economy is recovering, not just forecasts.  They are committed to buying $80 billion of Treasuries and $40 billion of MBS a month.  According to Fed Chairman Powell, this will not end soon.  Bond markets are calling his bluff, as interest rates continue to rise. This week, Powell and Treasury Secretary Yellen will testify in front of the Senate and Banking Committee and the House Financial Services Committee on the heath of the US economy.  In addition, Treasury auctions this week include the 2-year, 5-year and 7-year notes.  Recall it was the poor 7-year auction on February 25th which was the catalyst for liftoff in bond yields (which brought the US Dollar higher).  Traders will be watching the testimony and auctions for further guidance to the US Dollar this week.

Forex market hours

Last week, the Central Bank of the Republic of Turkey (CBRT) held their latest Monetary Policy Meeting.  As a result of increasing inflation in Turkey (CPI was 15.6% in February), the central bank surprised markets and raised interest rates 200bps from 17% to 19%.  Expectations were only for a 100bps increase. The year end CPI target for the CBRT is 9.4%. CBRT governor Naci Agbal felt the 200bps was necessary to help the central bank bring inflation lower towards achieving its goal. He has vowed to get inflation down to 5% by 2023. The only problem with this is that President Erdogan has been an outspoken critic of high interest rates.  Therefore, as a result of the large increase in interest rates (and after only 3 months on the job), Erdogan fired Agbal. He was replaced by Sahap Kavcioglu, who is a former banker, lawmaker, and most importantly for Erdogan, someone who believes that higher interest rates will not solve Turkey’s inflation problems.

The markets have expressed their opinion that they believe Agbal’s firing was not the right decision. On a daily timeframe, after the central bank surprised markets by the 200bps rate hike, USD/TRY began moving lower, from 7.5651 down to the long term trendline dating back to early 2018 (red line) near  7.1924.  After the news over the weekend, USD/TRY gapped up from Friday’s close at 7.2189 to 8.3850 and reached a high of 8.5027.  Price was 17% higher from Friday’s close.  Resistance is just above at the all-time highs from November 6th near 8.5803.  Above there we can measure Fibonacci extensions for next resistance levels at the 127.2% and the 161.8% levels from the November 6th, 2020 highs to the February 16th lows at 9.0362 and 9.6161, respectively.

Source: Tradingview, City Index

On a 240-minute timeframe, USD/TRY is currently holding horizontal support from the highs before the CRBT meeting at 0.7825.  Below there is additional horizontal support near 7.6363 and then the gap fill from Friday’s close down at 7.2189. 

Source: Tradingview, City Index

USD/TRY may be volatile this week as the markets try and figure out what to make of new CBRT Governor Kavcioglu and what exactly he will do if inflation continues to rise.  Neither he, nor Erdogan, are a fan of higher interest rates, so Kavcioglu will have his work cut out for him to find ways to lower inflation!

Learn more about forex trading opportunities.


Disclaimer

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.