USD/TRY: Fed's Tapering Sets the Tone for New Record Highs At 9.08

Summary:

Early tapering of the QE program by the Fed puts the USD/TRY in a position of hitting new record highs, with 9.08 as a potential target.

With the US adding nearly a million jobs to mark a pandemic high as reported by the US Department of Labor on Friday, a pathway towards early tapering of the QE by the Fed is emerging. This event poses a risk element for emerging market currencies such as the USD/TRY.

Indeed, the hawkish comments of the Vice-Chair of the Federal Reserve Richard Clarida made a few days before the NFP release set the tone for the upside on the USD/TRY, which has since seen five uninterrupted bullish sessions.

New weekend lockdowns imposed in Turkey are also not helping the Lira’s cause. A Reuters survey of 57 strategists, conducted between 28 June and 1 July, indicates that 3 out of 5 analysts polled thought the Turkish Lira could weaken against the greenback if the Fed were to commence tapering later this year.

The USD/TRY is trading 0.39% higher, as it extends gains into the 5th straight session.

USD/TRY Technical Outlook

Clearance of 8.57488 by last Friday’s candle fulfilled the 3% penetration close benchmark for a breakout, allowing for an advance by Monday’s daily candle towards 8.74610. If the price breaks this level and also exceeds the 22/25 June highs at 8.80000, the USDTRY would have attained new all-time highs. This leaves 8.95736 and 9.08339 (78.6% and 88.6% Fibonacci extensions, respectively) as the potential new targets to the upside.

On the flip side, rejection at 8.74610 allows for a potential pullback to retest 8.57488. If the correction is deeper, then 8.36986 and 8.29080 could become potential targets to the south.