USDTRY Retreats Ahead of CBRT Decision Tomorrow

USDTRY gives up 0.66% as the pair retreats from three month-highs ahead of the CBRT decision tomorrow. OECD revised the forecast for the Turkish economy to -0.3% 2019 from -2.9%. On the other hand, it did not change the projection for 2020 and expected the Turkish economy to grow by 1.6%. Turkey’s unemployment rate increased to 13.9% in July from 10.2%. IMF revised its GDP growth to 0.25% instead of a previously projected 2.5% contraction for the full year 2019.

The Turkish Central Bank delivered in its previous meeting a 325 bp interest rate cut to 16.50% more than markets expected. Markets were expecting 300 basis points interest rate cut from 19.75%. CBRT slashed borrowing costs by 7.5 percentage points since July in an attempt to revive growth. President Tayyip Erdogan pressured central bank (CBRT) to cut interest rates as he wants rates to be back in single digits.

The analysts for tomorrow are divided with the expectations ranging from 0 to100 basis point rate cut, while I can’t rule out a 200 bp cut as the inflation in September dropped to 9.26% which is a three-year low. Meanwhile as the Turkish army operations in Syria continues the risks for Turkish lira and trade balance increase to the downside. If tensions between Turkey and USA keep escalating, CBRT might have to consider further rate hikes to stop the fall of Turkish lira.

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USDTRY Technical Analysis

On the technical side, USDTRY short term outlook is bullish despite the recent correction from three-month highs, as the pair holds above all major daily moving averages. The bull run from 5.45 August 8th lows stopped mid-October at 5.94. The pair accelerated the upward move after the price pierced the descending trendline from May 23rd. On the upside immediate resistance for the pair stands at 5.7927 today’s high and a break above might drive prices for a test of the next support at 5.859 the high from October 21st,

On the flip side first support stands at 5.7613 today’s low, then at 5.7206 the 100-day MA, while more offers will emerge at 5.6630 the 200-day moving average. All in all USDTRY outlook is positive as CBRT interest rate cuts and military action will continue to pressure Turkish lira.

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