The USD/TRY resumes its slow push towards the previous all-time high levels, adding 0.16% on the day ahead of tomorrow’s interest rate decision by the Central Bank of the Republic of Turkey (CBRT).
The CBRT has overseen a 125% deterioration in the value of the Turkish Lira against the US Dollar since September 2021, mainly due to the inexplicable stance to maintain or lower interest rates in the face of consumer inflation that has spiralled over 70%. Historically, the bank’s leadership has been answerable to the Turkish President, who has favoured loose monetary policy to try to stimulate an economy battered by the impact of the COVID-19 pandemic and a sharp reduction in FX inflows.
Yields on the 10-year Lira bonds slumped by 300bps last Tuesday after the CBRT announced a requirement for banks to hold securities of minimum maturity of five years, with the value of such assets equivalent to between 3% and 10% of their customers’ foreign currency deposits. Analysts called this move an “artificial interest rate cut.”
Earlier this month, President Recep Erdogan dropped a hint that the CBRT’s next move would be a rate cut, which would pile more pressure on the Lira. The 1-week repo rate currently stands at 14%, with inflation coming in at 73.5% in May 2022.
The breakout move from the rectangle pattern has continued to the upside, breaching resistance levels at 15.734358 (23 May low) and 17.194936 (16 June 2022 low). This leaves the pair with an upside opportunity of retesting the 18.362400 all-time high of 20 December 2021 or surpassing this point to make contact with the 19.0000 psychological support level.
On the flip side, the pathway towards the 17 December 2021 and 23 May 2021 lows at 15.734358 will only be clear if the bulls fail to defend the support at 17.124936. There is a potential pitstop at 1-3 June lows located at 16.336290.
Further south, a breakdown of 15.734358 opens the door toward 14.519500, with the upper border of the rectangle at the 15.0000 psychological price level forming another pitstop. Finally, 13.949377 forms an additional southbound target, being the site of the 10 January 2021 high.