USD/TRY: Worsening Inflation, Recession Fears Driving the Bull Trend

Summary:

The USD/TRY looks set to retest record high as worsening inflation and global liquidity turn away from emerging market assets punish the Lira.

Worsening inflation in Turkey has put the Lira under pressure, putting the USD/TRY on course to retest the record highs attained in June 2022. The USD/TRY is up 1.22% this Wednesday as the pair closes in on a 4th consecutive positive close.

Turkey’s annual inflation rate spiked to 78.62% in June, beating forecasts. The Lira’s problems are no longer restricted to just woes from worsening inflation and a monetary policy response by the Turkish Central Bank that defies economic principles. Fears of a global recession are pushing investment flows away from riskier emerging market currencies and towards safe-haven assets. This sets up a perfect situation for traders bearish on the Lira. The Lira is down 27.6%, and it could get worse as the markets are betting on another 75bps rate hike by the Federal Reserve on 28 July.

Witold Bahrke, a Senior Macro Strategist at Nordea Management, opines that a turn in the global liquidity wave in an environment where monetary policy is non-credible could mean that it would be hard to see any light at the end of the tunnel for the Lira. The strongly bullish moves of the USD/TRY seem to confirm this.

USD/TRY Forecast

The previous 4-hour candle breached the 17.20011 resistance by closing above it. Another candle close by the active 4-hour candle above this resistance confirms the break, allowing the pair to aim for the 17.40074 price mark. A clearance of this new barrier puts the pair on course to target the 17.56983 record high.

On the other hand, failure to confirm the break of the 17.20011 resistance could lead to a pullback. This pullback allows the bears to aim for the 16.95560 support level. An additional decline toward the 16.8000 psychological price level (5 July low) is on the cards if the bulls fail to defend 16.95560. Other downside targets are found at 16.70482 (8 June low and 29 July high), and 16.4666 (29 May 2022 high).