USD/TRY moves to 2-day highs beyond 5.8100
- USD/TRY climbs above the 0.8100 handle, new 2-day highs.
- Fears of US sanctions keep the Lira under pressure.
- Istanbul mayoral elections on June 23 poses the immediate risk.
The Turkish Lira is trading on the defensive at the end of the week and is now lifting USD/TRY to fresh 2-day highs above 5.8100 the figure.
USD/TRY looks to geopolitics, Istanbul elections
TRY is giving away some gains after reaching fresh 2-week highs vs. the buck in the 5.73 region on Thursday, all following the rejection from levels beyond the 5.93 handle a week ago.
The renewed selling bias in the greenback has been intensified by the dovish twist at the FOMC meeting on Wednesday and at the same time has propped up the inflows to the EM FX space, all morphing into fresh buying interest for TRY.
However, TRY is expected to come under some pressure in the next hours in light of the re-run of the Istanbul municipal elections on Sunday. It is worth recalling that Erdogan’s AK Party lost the first mayoral elections by a narrow margin in March, which later resulted in the appeal to the Supreme Court authority adducing irregularities.
What to look for around TRY
Recently, the CBRT left no doubts it will continue to support the current tight monetary conditions. However, the enduring disinflation process seen in past months opens the door to a potential shift from the central bank to a more accommodative stance, including the palpable chance of rate cuts despite this move on rates appears untimely in the near (and medium) term. Real headwinds for the Lira, however, remain well and sound and loom from the increasing likeliness of US sanctions and further escalation in US-Turkey tensions around the Russian S-400 defence system. It does not get better for TRY if we include in the equation the probable acceleration of outflows from the EM space in response to the deterioration of the US-China trade scenario and the plausible increase of domestic effervescence in the run up to the municipal elections in Istanbul due on June 23. That said, another move to the psychological yardstick at 6.00 the figure in the short-term horizon should be everything but ruled out.
USD/TRY key levels
At the moment the pair is gaining 0.80% at 5.8042 and faces the next up barrier at 5.9016 (55-day SMA) followed by 5.9326 (high Jun.14) and finally 6.1516 (high May 23). On the downside, a breakdown of 5.7324 (low Jun.20) would aim for 5.7025 (50% Fibo retracement of the 2019 rally) and then 5.6560 (low Jun.5).