USDTRY hovers into unchartered territory as the pair brakes above the 7,15 psychological mark. USDTRY breached above the 7.00 mark on Monday a level that was a strong resistance the last ten trading sessions. Turkey’s central bank intervention failed to guard the 7.00 mark as it drained the USD reserves.
The central bank and state commercial banks have been selling USD every time the Turkish lira approached the 7.00 mark. Turkey’s attempts to support the Turkish lira has become extremely tough amid the coronavirus crisis as the number of confirmed coronavirus cases continues to rise, and the central bank burns the forex currency reserves.
Credit-Fueled Economic Growth Drains FX Reserves
Turkish government supports a credit-fuelled economic growth that increased the domestic demand for US Dollars and for imported products that put extra pressures on the current account.
The central bank of Turkey (CBRT) cut the interest rates several times the last months, and now the basic rate stands at 8.75%, in an attempt to combat the coronavirus outbreak impact on the economy.
The economic conditions in the country are getting worse and worse, and now the IMF expects that the Turkish economy will contract by 5% in 2020.
The choices for the Turkish economy are for a swap line from the Fed, getting USD in return of Turkish lira, or an IMF loan. President Erdogan is against a loan from IMF as Turkey managed to exit the last IMF loan in 2013.
USDTRY is 1.13% higher at 7.1596, as the bullish breakout above the 7.00 mark accelerates. The pair is trading in unchartered territory as the pressure in Turkish lira intensifies. The technical outlook is bullish, and higher levels are in the card as we might experience a panic selling of Turkish lira. Bulls should watch the RSI that trades in the overbought area and a sharp correction can’t be ruled out.
On the upside, the first hurdle for USDTRY pair stands at 7.1629 the daily top. The next resistance will be met at 7.20 psychological mark.
On the other side, minor support for USDTRY pair stands at 7.0957 the daily low. If the USDTRY pair breaks below, the next support zone stands at 7.0315 the low from yesterday’s trading session. If the correction continues below 7.0315, then the next target stands at 6.9742 the low from April 30.