USD/TRY rose to 3-day highs around 13.60

• USD/TRY reverses the recent weakness and regains 13.60.
• Turkey 10y benchmark bond yields drop below 21%.
• The CBRT meets on Thursday and is expected to keep rates on hold.

The Turkish lira starts the week on the negative footing and now pushes USD/TRY back to the 13.60 region.

USD/TRY cautious ahead of CBRT

USD/TRY regains upside traction after four consecutive daily pullbacks against the backdrop of the generalized buying bias in the greenback, geopolitical jitters and rising demand for the safe-haven space.

Indeed, increasing concerns around the Russia-Ukraine-US front have been sustaining the exodus from the EM FX universe and the broad-based risk complex as of late, all favouring the US dollar and the rest of the safer assets.

On the domestic space, the lira is expected to remain under scrutiny later in the week, as the Turkish central bank (CBRT) will meet on Thursday. On that, consensus among investors expects the central bank to keep the One-Week Repo Rate unchanged at 14.00% without major changes to the statement.

What to look for around TRY

The pair keeps its multi-week consolidative theme well in place, always within the 13.00-14.00 range. While skepticism keeps running high over the effectiveness of the ongoing scheme to promote the de-dollarization of the economy – thus supporting the inflows into the lira - the reluctance of the CBRT to change the (collision?) course and the omnipresent political pressure to favour lower interest rates in the current context of rampant inflation and (very) negative real interest rates are a sure recipe to keep the domestic currency under pressure for the time being.

Key events in Turkey this week: Budget Balance (Tuesday) – CBRT interest rate decision (Thursday) – Consumer Confidence (Friday).

Eminent issues on the back boiler: Progress (or lack of it) of the government’s new scheme oriented to support the lira via protected time deposits. Constant government pressure on the CBRT vs. bank’s credibility/independence. Bouts of geopolitical concerns. Much-needed structural reforms. Growth outlook vs. progress of the coronavirus pandemic. Earlier Presidential/Parliamentary elections?

USD/TRY key levels

So far, the pair is advancing 0.98% at 13.5859 and a drop below 13.4125 (55-day SMA) would expose 13.2327 (monthly low Feb.1) and finally 12.7523 (2022 low Jan.3). On the other hand, the next up barrier lines up at 13.9319 (2022 high Jan.10) followed by 18.2582 (all-time high Dec.20) and then 19.0000 (round level).