Turkish Lira Benefits from Aggressive Rate Cut

The Central Bank of the Republic of Turkey (CBRT) heeded the call of President Recep Erdogan to loosen monetary policy> The CBRT cut its one-week repo rate from 24% to 19.75%. This was a bigger rate cut than the market was expecting (21.5%).

Naturally, a cut in interest rates is expected to be a dovish event which leads to a weakening of the currency in question. In obeying this expectation, the Turkish Lira weakened significantly across board. The USDTRY spiked by almost 500 points once the news hit the markets.

This rate cut signals that the new CBRT leadership has decided to work in consonance with the central government in defining future monetary and fiscal policy. Recall that the TRY had weakened when President Erdogan sacked former CBRT Chief Murat Cetinkaya, whose hawkish tone had angered Erdogan.

Technical Plays for USDTRY

USDTRY has resumed the downtrend following the CBRT’s dovish rate policy and is now testing the support levels defined after yesterday’s rate cut. I expect USDTRY to test the S1 daily pivot at 5.6430.

Violation of this area will open the door for a test of 5.58962 (S2 pivot). If S1 support holds, then price may rebound to the central pivot at 5.70596. Bias for USDTRY is presently bearish.