USD/TRY: The best technical chart these days – Rabobank

Piotr Matys, EM FX Strategist at Rabobank, explains that escalating market concerns about trade wars and bullish comments from White House economic adviser Larry Kudlow, who boldly declared that he would buy “King Dollar”, lifted USD/CEEMEAs with gains led by USD/TRY and followed by USD/RUB.

Key Quotes

“Starting with the lira, a much slower than anticipated slowdown in inflation and wider current account deficit triggered a sell-off in Turkish bonds, which proved to be the catalyst for a bullish technical breakout in USD/TRY from the year-to-date sideways range.”

“USD/TRY is on path to end this week above the December 14 high at 3.8970, trading as high as 3.9195 so far today. A close above this level would be a strong confirmation that the bias has shifted to the upside with the all-time high at 3.9826 as next potential target.”

“At this stage our mid-term target set at 4.20 does look ambitious. But, over the past few years USD/TRY produced significant gains.”

“On our long-term chart we have marked periods of consolidation followed by powerful bullish breakouts. Looking purely from the perspective of technical analysis, there seems to be a regular pattern supportive of the notion that USD/TRY may set a new all-time high in the coming months perhaps well above the 4.00 level.”

“We have to be mindful that gains in USD/TRY could be capped by demand for the lira from carry trade investors. After all, the lira is one of the highest yielding EM currencies. A strong verbal signal from the central bank that policy makers led by Governor Cetinkaya are ready to act and may raise interest rates at the next meeting scheduled on April 25 would also provide the lira with much needed support in the coming weeks.”

“The pressure on the CBRT to act has definitely increased as the sharp rise in USD/TRY to ytd high has been accompanied by gains in EUR/TRY to a new all-time high, which is set to have inflationary consequences.”