Preview of CBRT Rate Decision: How It Affects the USDTRY

The USDTRY will be in focus as the Central Bank of the Republic of Turkey (CBRT) is set to meet tomorrow to decide on its first interest rate decision for 2020. Once more, the expectation is for the Turkish central bank to press on with its easing cycle and deliver a 50bps cut, which would bring down the interest rate to 11.5%.

The statement released by the monetary policy committee in December was dovish, with the CBRT reiterating that inflationary trends in Turkey continued to be moderate. There has been a recovery in some economic indices: the manufacturing PMI, consumer sentiment and household consumption staged a recovery in Q4 2019. Reductions in interest rates on credit facilities to small businesses as well as a reduction in Value Added Tax are also incentives put up by the govt to shore up growth.

To cap it all up, President Erdogan has continued to ramp up rhetoric on the need to bring down inflation in 2020, which continues to fuel speculation that the easing cycle is more politics than economics.

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Technical Outlook for the USDTRY

A 50bps cut may have been priced in by the markets and may produce a moderate response on the USDTRY. However, surprises have happened with this release and there is really no knowing how the currency may decide to respond should the CBRT deliver a surprise.

The USDTRY is in a medium-term symmetrical triangle. A rate cut by more than 50bps is considered dovish for the Turkish Lira and we could see the USDTRY break out of the triangle, targeting the August and September 2018 highs of 6.5728.

A rate cut of 50bps or less may be considered by the market as TRY-positive, which could trigger a selloff on the USDTRY.  This breaks down the triangle and targets the 5.18095 price level, which is the 38.2% Fibonacci retracement from the May 2014 swing low to the swing high of July 2018,

Please note: this is a very volatile news release and wild swings of price in both directions in the first 15 minutes of the news release have been noted in the past, so caution is advised when trading this news piece.More content