USDTRY Lira Stabilizes After Turkeys Central Bank Delivers Surprise Rate Hike

USD/TRY: Lira Stabilizes After Turkey’s Central Bank Delivers Surprise Rate Hike

For anyone who’s following Turkish monetary policy (so about 6 of our readers), it’s not surprising that most traders were expecting no change to the Central Bank of the Republic of Turkey’s (CBRT) key interest rate given the close ties between the central bank and the government. After all Turkey’s President Erdogan outright said last year that he “fired the previous central bank governor because he wouldn’t listen and we have decided to move on with our new friend [current CBRT governor Murat Uysal],” whom he told “we are going to lower interest rates.”

Against that backdrop, it’s truly shocking that the CBRT decided this morning to raise its primary interest rate a full 200bps from 8.25% to 10.25%. In its statement, the central bank said a rate rise was needed to contain inflation, which stood at 11.7 per cent in July – more than double the bank’s 5 per cent target. While the move is clearly justified based on monetary policy and a need to avoid a balance of payments crisis (and the lira accordingly recovered off its record lows), some analysts have suggested that the abrupt change in policy shows that the situation may be more dire than feared; in other words, the CBRT’s surprise rate hike could indicate a panic, last-ditch effort to avoid a full-blown currency crisis.

Turning our attention to the chart, USD/TRY remains a clear uptrend despite today’s dip, with rates still trading higher on the week and up nearly 20,000 pips (!) from the January lows. The short- and medium-term exponential moving averages (8-day, 21-day, and 50-day) are all trending higher, signaling a healthy uptrend that may be more likely to continue. Meanwhile, though the RSI indicator is within “overbought” territory, it’s not showing a meanginful bearish divergence yet; in other words, the new highs in the exchange rate itself are being confirmed by new highs in momentum as well, so there could still be room for rates to extend their uptrend from here:

Source: TradingView, GAIN Capital

With USD/TRY already testing record highs (record lows in the lira), there are no levels of previous resistance to watch. One method that traders can use to project potential resistance levels in these types of scenarios is to look at “Fibonacci extensions.” The pair has already exceeded the 127.2% and 161.8% extensions of the Q2 pullback, so if bulls are able to shrug off today’s CBRT decision, USD/TRY may look to target the 200% retracement at 7.85 or the psychologically-significant 8.00 level next.

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.