USDTRY: Rate Hike by Turkish Central Bank is Imminent – JP Morgan

The USDTRY pair has been boring in the past few weeks. The pair is trading at 6.8465, which is the same level it has been in in the past two weeks. As a result, the pair’s volatility have dropped to the lowest level in months. This could change today as the Turkish Central Bank delivers its rate decision.

Turkish central bank preview

The Turkish central bank started its two-day meeting yesterday. It will release its interest rate decision at 11:00 GMT today and analysts don’t expect the bank to make any changes to its policies. They see it leaving the base lending rate at 8.25% as it did in the previous month. It has made nine rate cuts in this year alone.

The interest rate decision comes at a time when the number of coronavirus cases in the country has flattened. The daily number of new infections has averaged about 1,000 in the past few weeks. At the same time, business activity has started to improve in the capital and around the country. This has seen inflation start to rise and is 5% above the bank’s target of 7.4%.

This means that the bank will not have any incentive to lower or increase rates at the current meeting. Still, according to Bloomberg, the bank could increase interest rate for the first time since 2018 later this year. In a statement, an analyst at JP Morgan said:

“With recovering domestic demand and increasing price pressures, the next move will be a hike. We have the first hike in the first half of 2021, but a sharper-than expected demand recovery could lead to heightened risks to price and financial stability, encouraging the central bank to act earlier.”

USDTRY technical forecast

There is nothing much to say about the USDTRY pair, other than it looks boring as you can see below. On the daily chart, the pair is trading at 6.8445, which is along the 50-day EMA. It is above the 100-day EMA. On the other hand, its volatility, as measured by the Average True Range (ATR) has dropped to the lowest level in months. The price is also along the 23.6% Fibonacci retracement level. This retracement connects the lowest level on August 9 with the highest level this year.

Therefore, the low amount of volatility sends a signal that the a breakout could be around the corner. Will the Turkish central bank decision be the main catalyst? We have to wait and see. Therefore, the key support and resistance for the USDTRY pair are at 6.600 and 7.000, respectively.

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USDTRY forecast

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