Lira Goes Loco
The Autumn is well and truly here in London, with the days getting shorter and the air getting colder. However, at least we had plenty of hot action in the markets this week to keep us warm. Talking with traders about the big winners and losers across the week it seems that the most attention has been on the big moves seen in the Turkish Lira. It’s been an action packed week across the broad, however, the roughly 5% jump in USDTRY seems to have taken the crown. So, let’s talk about what caused this move and, as always; if you caught it? Well done! If not? There’s always next week.
What Caused the Move?
CBRT Rate Cut
There was one major catalyst behind the price action we saw in USDTRY this week: the CBRT slashing interest rates. In a move which has left economists truly puzzled, the CBRT responded to a cratering Lira and soaring inflation by yet FURTHER reducing interest rates. While the move is shocking, it isn’t technically “surprising”. Following President Erdogan unceremoniously dismissing the former CBRT head (who was attempting to combat inflation through rate hikes), Erdogan installed a well-known dove who is, essentially, acting on Erdogan’s behalf to deliver rate cuts and supress the Lira.
Hyper-Inflation
The Lira is now trading at an all-time low against the Dollar following the 2% rate cut seen this week. Yep, that’s right, 2%. In September, inflation was seen back up at 19.58%, just off record highs. The fear is now that this latest move will further accelerate the path to hyper-inflation and dollarisation which has been underway seen Erdogan replaced the CBRT head.
With Erdogan defying critics on a domestic and global scale, the outlook is simply for more of the same at this point, meaning that USDTRY looks to have plenty of room to continue trading higher. Once the Fed begin tapering, this dynamic will be further reinforced. So, let’s take a look at the technical view now then.
Technical View
USDTRY
The rally in USDTRY this week has seen the market breaking out above the former all-time highs at 9.3643. While above here, and with indicators firmly bearish, the focus is on further upside. Below there, any correction should find support into a test of 8.9460 – 8.7921 with the rising trend line around there also.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.