The CBRT Interest Rate Decision: Implications for the USDTRY

Summary:
• The CBRT looks set to lower its key benchmark repo rate to 10.75% when the bank concludes itsmeetings tomorrow, wiith imolicast

Tomorrow February 19, 2020, at 11 am UTC, the Central Bank of the Republic of Turkey (CBRT) will announce its key interest rate, with implications for the USDTRY. The CBRT has performed five interest rate cuts since President Erdogan replaced its ex-Governor Cetinkaya over a difference of opinion in the interest rate direction. 

The expectation is for the CBRT to deliver the 6th repo rate cut in a row, sending it down by 50 bps from 11.25% to 10.75%. These numbers were derived from a Reuters poll of 15 institutions. Over time, the response of the USDTRY has become more muted, as the deviation between the actual figure and the market consensus narrow.  

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Implications for the USDTRY

There is no expectation for a rate hike. Expectations will range from a rate hold at 11.25% to a rate cut that sends the repo rate to 10.75%. 

• If the CBRT delivers anything less than a 50bps (rate hold or 25bps cut), this is expected to be TRY-positive, and we could see a sharp drop in the USDTRY. 
• A rate cut of 50bps has already been priced in and may produce some choppiness that could send the USDTRY down initially and back up, or vice versa. 
• The markets could view a rate cut of more than 50bps as TRY-negative, which is expected to lead to a spike in the USDTRY. 

The USDTRY pair was trading at 6.06179 as at the time of writing. It is already breaking out of the symmetrical triangle formation seen on the weekly chart. The pair is trading at the third-highest levels in its history. Therefore, a TRY-negative decision by the CBRT tomorrow could target the 6.52786 price level, with its all-time high of 7.09511 around the corner. This price move would be in tandem with the outcome for most triangle patterns, which typically end in a continuation of the prior trend. 

On the flip side, a CBRT repo rate decision which is deemed to be TRY-positive could send the USDTRY lower to target the 5.66176 and 5.49975 price areas, in sequential order. This price move would invalidate further upside on the pair on a medium-term basis. 

4 level, as the difference between the upper and lower limit of the pattern is added to the October 25 high. On a break to the October 11 low at $1473.68, the price might be able to reach the $1428.95, as the difference in the range is subtracted from the October 11 low.

Time will tell if bullish or bearish traders will command price as the chart pattern itself is neutral in its outlook.