USD/TRY challenges 2-day highs, approaches 8.5000

• USD/TRY back-pedals Wednesday’s loses and tests 8.4600.
• Turkey’s End Year CPI Forecast are due on Friday.
• Investors’ shift their focus to the CBRT meeting next week.

The Turkish lira depreciates to 3-day lows vs. the greenback and lifts USD/TRY to the vicinity of 8.4800 on Thursday.

USD/TRY up on dollar gains

USD/TRY resumes the upside and trades in levels closer to the key 8.5000 area in the second half of the week against the backdrop of the strong recovery in the greenback. The upbeat note in the buck remains propped up by the uptick in US yields to the vicinity of the 1.32% area and the generalized preference among traders for the safe haven.

Investors’ bias towards the greenback accelerates the outflows from the EM FX space along with the risk-associated universe and other dollar-denominated assets.

On the domestic front, the Turkish central bank (CBRT) increased the reserve requirement ratio (RRR) for FX and gold deposits by 200 bps on Wednesday. Therefore, the RRR deposits for up to one year rose to 23 % (from 21%) and to 17% (from 15%) for deposits longer than a year. This intended positive impact on the lira of this measure, however, still remains doubtful.

In the meantime, TRY is poised to suffer increased volatility as the CBRT meeting looms closer, all following last week’s shift in the central bank to now look to the core inflation when comes to setting the policy rate. Core consumer prices in Turkey are seen more stable apart from lower than the headline CPI.

Next on tap in the Turkish docket comes the End Of Year CPI Forecast, due on Friday.

USD/TRY key levels

So far, the pair is gaining 0.46% at 8.4703 and a drop below 8.4013 low Sep.10) would aim for 8.3821 (20-day SMA) and finally 8.2590 (monthly low Sep.6). On the other hand, the next up barrier lines up at 8.4922 (55-day SMA) followed by 8.5172 (monthly high Sep.9) and then 8.5578 (high Aug.20).