USD/TRY Dollar On the Edge As Lira Targets Fourth Successive Weekly Win

Summary:
• The Turkish lira is trading marginally below a weakened US dollar, with weak US fundamentals exerting pressure on the USD/TRY pair.

The US dollar stayed in recovery mode against the Turkish lira on Friday, with the USD/TRY pair trading at 32.284 in the intraday session after rising by 0.32 percent. The lira ended the last three weeks with gains against the dollar, but that winning streak is likely to come to an end this week, with the dollar having a marginal 0.08 percentage gain as of this writing.

However, the US dollar’s upside is limited by pressure from weak economic data, which have raised the prospects of interest rate cuts by the Federal Reserve in the second half of the year. In the latest releases, Initial Jobless Claims stood at 222,000, for the week ending May 9, exceeding the forecast estimate of 219,000.

The housing market followed a similar pattern, with lower-than-expected figures for the Housing Starts and Building Permits issued in April.  The preliminary reading for the April building permits came in at 1.44 million, lower than the forecast 1.48 million. Meanwhile, the number of Building Permits issued for the month stood at 1.36 million, also below the forecast figure of 1.42 million.

Looking ahead, the Turkish End Year CPI Forecast figure will be out later on Friday, and it will likely inject some volatility into the USD/TRY pair. Turkey has been grappling with hyperinflation for a long time, a factor that sent the lira to new historic lows in April, when the inflation rate neared 70%. Meanwhile, the Turkish government has made radical interventions in recent weeks to reduce the heat on the economy. These include an interest rate hike to 50 percent announced in March and a reduction of investment in public works by 15 percent. However, the impact of these interventions is likely to be gradual.

Technical analysis

The buyers are currently in control of the USD/TRY market, as shown by the RSI indicator. The pair pivots at 32.256, and the upside will likely continue if the rate stays above that mark. In that case, the next resistance is likely to come at 32.300. Furthermore, a breach of this level could strengthen the upward momentum to test 32.340. On the other hand, if the rate goes below the pivot mark, the sellers will be favoured to take control, with the first support likely to come at 32.221. A break below that level will invalidate the upside narrative and potentially build the momentum to test 32.189.