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USD/TRY Analysis Ahead of the CBRT Interest Rate Decision

ISTANBUL, TURKEY - May 23, 2016: Turkish President Recep Tayyip Erdogan during World Humanitarian summit in Istanbul

The USD/TRY pair retreated slightly in the overnight session as investors waited for the latest interest rate decision by the Turkish Central Bank. The pair declined to 13.25, which is slightly below this week’s high of 13.68. 

The Central Bank of the Republic of Turkey (CBRT) will conclude its two-day meeting later today. Analysts expect that the bank will leave its main interest rate at about 14%. It will also leave the overnight borrowing and lending rates unchanged at 12.50% and 15.50%, respectively. 

Still, analysts will be watching at the what the bank will say about monetary policy and its future policy. Most importantly, they will focus on whether the central bank will point to more cuts later this year.

The CBRT decision comes a day after the CBRT announced a major $5 billion currency swap with the United Arab Emirates (UAE). In a statement, the UAE central bank governor said that the agreement reflects on the desire to enhance the bilateral cooperation between the two countries.

Still, the biggest challenge for Turkey and other emerging market economies is the Federal Reserve. The Fed has committed to hike interest rates this year. Therefore, higher US rates means that countries will have to pay more to service their dollar debt.

USD/TRY technical analysis

The four-hour chart shows that the USD/TRY pair has been in a tight range in the past few weeks. As a result, the pair is hovering along the 25-period and 50-period moving average. The Average True Range (ATR) has also dropped to the lowest level since November 18 last year. 

It has also formed a triangle pattern. This means that the pair will likely have a breakout after the CBRT decision. The key levels to watch will be at the support and resistance points at 12.50 and 14.0.