Sell USDTRY for target of 3.4000 – Standard Chartered

Geoff Kendrick, Emerging Markets FX & Global Macro Strategist at Standard Chartered Bank, explains that TRY fits in their favoured category of a current account deficit emerging market funded by bond inflows and in addition lower commodity prices and rebuilt local USD deposits are also supportive to go short in USDTRY pair.

Key Quotes

“While nothing has changed in terms of Turkish domestic reforms since then, two other drivers for TRY have improved – commodity prices have fallen (among high-yield emerging markets, TRY and INR benefit from lower commodity prices) and local USD deposits have been rebuilt. Indeed, we note that both corporate and ‘other’ USD deposits in Turkey are back at all-time highs and personal USD deposits are just USD 7bn off their highs (USD deposits were run down after the July 2016 attempted coup and their rebuild has threatened USD-TRY’s move lower).”

“More broadly, we think a constructive EM FX backdrop is one in which investors should choose a direction and fade headlines when they occur. The 9 May headline from the Pentagon about providing arms in the region is one such headline, in our view, especially as it comes ahead of next week’s US visit by President Erdogen.”

“We recommend selling USD-TRY; current: 3.6100, target: 3.4000, stop-loss: 3.7200. Carry is +11% annualised.”