USD/TRY Signal: No Reprieve for the Turkish Lira. What Next?

Summary:
• The USD/TRY price has jumped to the highest level on record as concerns about the Turkish central bank continued.

The USD/TRY price has jumped to the highest level on record as concerns about the Turkish central bank continued. It rose to a high of 18.22, which was a few pips below its all-time high of 18,40. The pair has jumped by more than 78% from the lowest level this year, meaning that the Turkish lira is the worst-performing currency this year.

CBRT concerns remain

The USD to TRY exchange rate continued its bullish trend after the latest Turkish GDP data. According to the country’s statistics agency, the economy expanded by 7.6% in the second quarter. This was a better increase than the 7.4% increase than analysts were expecting. It was also better than that of most countries in emerging markets.

The strong Turkish lira happened because Erdogan’s economic model is one that puts more emphasis on exports and production at the expense of price stability. As a result, interest rate cuts have led to more borrowing by companies, while the weak Turkish lira has made the country’s goods more attractive abroad. Household consumption rose by 22.5% from a year earlier, even as inflation surged to 80%.

The Turkish economy has also been helped by booming tourism as the number of arrivals, and spending by foreigners jumped by more than 100%. Still, the USD/TRY has weakened for several reasons. First, the CBRT has embraced a more dovish tone.

It slashed interest rates by 100 basis points. As a result, the bank has shown no interest in intervening and boost the lira. Second, the European economy is set to move into a recession in the coming months. This is notable since the EU is the biggest market for Turkish goods.

USD/TRY forecast

The daily chart shows that the USD to TRY exchange rate has been in a strong bullish trend in the past few months. It has jumped above the 25-day and 50-day moving averages and is slightly below the important resistance level at 18.40. Therefore, the pair will likely keep rising as bulls target the next key resistance level at 19. A drop below the support at 18 will invalidate the bullish view.