It has been the end of a turbulent week for the Turkish Lira, and the USD/TRY looks set to end higher for the week. The pair has reclaimed 4-month highs after a devastating blow deal to the Lira by the Turkish President Recep Erdogan, who sacked Naci Agbal as Governor of the Central Bank of the Republic of Turkey (CBRT) barely a week after the bank raised interest rates by 200 basis points.
The ensuing weakness on the Lira has allowed the USD/TRY to clear the 8.0000 mark despite a rise in Turkey’s Manufacturing Confidence from 109.3 to 110.8.
The Turkish lira looks set for an extended run into the offered territory, as rumours of a new crisis in the balance of payments have surfaced. The new CBRT Governor S.Kavcioglu is expected to stick to his paymaster’s playbook by reversing Agbal’s policy structure. How he implements lower rates against rising inflation, a weaker currency and dwindling currency reserves could present a monetary policy novelty.
A combination of a stronger dollar and a pressured lira could allow the USD/TRY to post new all-time highs in 2021.
Three critical resistance levels stand between the current price and new all-time highs on the USD/TRY. The current resistance stands at 8.04069 (24 November 2020 high) and needs to be uncapped for 8.19744 (11 November 2020 high) to come into the picture. Further barriers lie at 8.36986 (4 November 2020 low; 10 November 2020 high) and the all-time high at 8.5777, posted on 6 November 2020.
On the flip side, rejection at the current resistance with a subsequent pullback targets 7.95635 initially, with 7.83210 and 7.78688 (9 March 2021 high) lining up as potential pivots to the south. Any of these levels could be viewed as retracement points for potential dip-buying as long as the current fundamentals persist.
