USDTRY Spikes; Retests All-time Highs As Borrowing Costs Surge


The Turkish Lira has hit record lows against the US Dollar after investors were panicked by a sudden surge in borrowing costs overnight on Tuesday, triggering two days of a Lira selloff. This has allowed the USDTRY pair to hit record highs on Thursday, as the pair climbed 3.31% on the day. Borrowing costs for the Turkish Lira in swap transactions exceeded 1,000% on an annualized basis, spooking investors who have headed for the exit door in droves over the last two days. 

After spending billions in its foreign reserves in an attempt to defend its currency, Turkey’s net foreign assets is reported to have hit the -$32billion mark. Turkey’s aggressive rate cuts which lasted for a year before the CBRT stalled rates in last month’s meeting as well as the coronavirus pandemic which has virtually crippled its tourism industry, has left the country’s currency in the doldrums. Continuous interventions to prop up the Lira have depleted the foreign reserves, and with very little income coming in from Turkey’s coronavirus-hit foreign exchange-earners, it is getting harder to protect the country’s bonds against default. 

The USDTRY is currently trading at 7.21740, having touched off highs at 7.26685 earlier in the session. Only the inherent weakness in the US Dollar may have prevented further damage to the Lira. 

Technical Outlook for USDTRY

Following Tuesday’s bounce on the 6.89410 support line, the USDTRY has burst through the 7.08515 resistance line, but was unable to break the resistance formed by the previous all-time high. A breakout of that level requires a closing penetration of at least 3% above that resistance, or two daily candles closing above that price level. 

On the flip side, failure to fulfil the time filter or price filter confirmations for a breakout may lead to a pullback that retests the 7.08515 support, with 6.99821 and 6.89410 lining up as further downside targets. 

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USDTRY Daily Chart

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