- Summary:
- USDTRY spiked on Wednesday, but the underlying momentum signals a potential drop if it breaks the 34.00 mark. Could the Fed trigger that?
USDTRY hit new record highs of 34.38 on Wednesday, with the pair spiking suddenly before easing down to a more predictable path. The latest decline by the lira was triggered by rumours of resignation of Turkey’s Finance Minister, Mehmet Simsek. The rumours ultimately proved to be unfounded, but the lira has not recovered.
Simsek is key to the sentiment around the lira, as he is accredited with spearheading Turkey’s turnaround from unorthodox economic policies. The Turkish Government’s ultra-high interest rates environment has attracted lots of forex inflows, with foreign investors holding about 7 percent of domestic government bonds, up from just 0.6 percent in May. Nonetheless, it has brought the lira some stability and predictability.
The USDTRY pair is up by 15 percent this year, placing the Turkish lira among the worst-performing currencies in the world alongside the Argentine peso. President Recep Erdogan’s Government’s shift to conventional economic policy has seen the lira become a much sought-after currency for carry trades since last summer. However, with the Fed interest rate decision set for next month, it could weigh in on the trend.
Momentum indicators
USDTRY momentum on the 4-hour chart signals a likely continuation of the upside, with the currency pair still above the middle Bollinger Band. However, it may need to stay above the psychological round support level of 34.00 to maintain traction. Meanwhile, the Moving Average Convergence Divergence (MACD) is below the signal line, indicating that the upward momentum could dissipate.
Support and resistance levels
The 30-minute chart on USDTRY calls for upside above the 34.00 pivot mark. The momentum will likely encounter initial resistance at 34.08. However, if the buyers extend their control, they could break above that barrier and head higher to test 34.15.
Alternatively, if the pair moves below 34.00, it could succumb to bearish control. In that case, the first support will likely come at 33.90, but extended control could breach that mark and invalidate the upside narrative. Also, it could strengthen the downward momentum to test 33.83.
