The USDTRY has plunged to multi-month lows after the Central Bank of the Republic of Turkey hiked its one-week repo rate from 10.25% to 15.00%. This outcome met market expectations and helped to reinforce the recent strength that the Lira has shown against the greenback.
The 475 bps rate hike from the CBRT comes as the new governor and the economic team try to shore up the value of the Turkish Lira, which had before now had a 28% losing run for the year against the US Dollar. Overnight Lending and Overnight Borrowing rates were also raised from 11.75% and 8.75% to 16.50% to 13.50% respectively.
In a change of policy, the CBRT has said that it would now use the one-week repo rate as its main policy tool, which would restore the confidence of foreign investors and also marks a return to a more conventional monetary policy system. The CBRT also hopes to discourage increasing dollarization of the Turkish economy by weakening the greenback’s positioning against the Lira.
Technical Levels to Watch
The bearish flag on the daily chart has now given way as a result of today’s 1.64% move to the downside at the time of writing. This move also violates the 50% retracement from the 2 June 2020 low to the 6 November 2020 high at 7.62494. If the active candle closes below this support level, then the pathway towards the support at 7.39840 (18 August high and 10 September low) is opened. 7.26356 and 7.19656 are additional targets to the south.
On the flip side, lack of follow-through selling could allow for a recovery towards 7.78688. This move would enable the USDTRY to breach the lower edge of the flag, and would also put the 9 October low at 7.83210 at risk of a break if recovery momentum is strong.
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USDTRY Daily Chart
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