- Turkish lira remains on a free-fall amid the ongoing political interference and extreme dovish stance from CBRT.
- A strengthening US dollar has further boosted USDTRY.
- This week’s economic data from the US may push the currency pair past the all-time high hit in the past week.
Depreciating Lira
USDTRY remains on an uptrend amid the free-falling Turkish lira; a trend that is expected to continue in the short term. This assertion is founded on the CBRT’s continued dovish stance. Besides, the bank appears to stick to President Erdogan’s directive to maintain the low interest rates despite the currency’s steady depreciation.
The Turkish president has maintained that the low interest rates present the apt solution to inflation. Indeed, he has termed interest rates as ‘the devil.’ While most economists are against this approach, the leader has been adamant. In fact, he has fired several policymakers who have opposed the cuts.
Between March and May, Erdogan had fired four CBRT policymakers. The most impactful one was laying off governor Naci Agbal after serving in that position for less than five months. In mid-October, he ousted three policymakers.
The political interference has pushed the value of the Turkish lira against the US dollar down by over 30% year-to-date. The extended losses in the past week were a reaction to CRBT’s move to cut rates to 15%, down from 16% in October.
Strengthening US dollar
At the same time, USDTRY is reacting to the strong greenback. The dollar is hovering close to the 16-month high it hit in the past week. The ongoing uptrend is largely founded on it heightened safe-haven appeal.
To begin with, investors are concerned about the new COVID-19 wave that has hit Europe. The Netherlands, which is one of the most affected countries in the continent, recorded over 20,000 new cases on Sunday. Notably, the daily infections have been above this mark for close to a week now. While most countries are avoiding the stringent measures that triggered immense economic harm in 2020, Austria has resulted in a national lockdown.
In addition to the coronavirus-related apprehension, the US dollar is finding support in the ongoing inflation fears. Recent data showed an inflation rate that was last recorded 30 years ago. Subsequently, analysts and investors alike expect the Fed to start hiking interest rates sooner than expected.
In addition to the aforementioned factors, the US GDP data and FOMC meeting minutes scheduled for Wednesday will likely impact USDTRY. The data will further define the narrative regarding high inflation. Other figures to look out for in the course of the week are the home sales on Monday as well as the core durable goods orders, PCE price index, and jobless claims set for release on Wednesday.
USDTRY technical outlook
USDTRY is trading close to the all-time high it hit on Thursday. The currency pair has surged by over 50% since the beginning of the year. In November alone, it has risen by 17.21%. At the time of writing, it was up by 2.02% at 11.23.
On a four-hour chart, it is trading above the 25 and 50-day exponential moving averages. Based on both the fundamentals and technicals, I expect the pair to record further gains in the new week.
In the immediate term, the hit record-high will likely be a key resistance level. With an RSI of 75, it has entered the overbought territory. As such, a corrective pullback is probable. From this perspective, it may fall to find support at 10.96 before bouncing back. A further decline may place the support level along the 25-day EMA at 10.76.
On the upside, a move past the all-time high of 11.36, the next levels to watch will be 11.50 and 12.00. Despite the expected price swings, USDTRY will likely remain above the psychological level of 10.00 as the uptrend continues.
