USD/TRY resumes the rally, advances to the 5.80 area

• USD/TRY moves higher and tests the boundaries of 5.80.
• Better mood around the Dollar weighs on the EM space.
• Turkey Consumer Confidence improved to 58.3 in August.

The Turkish Lira continues to depreciate in the second half of the week and is now lifting USD/TRY to fresh two-month tops around 5.80.

USD/TRY up on USD-buying

The pair left behind yesterday’s pullback and it has regained some upside traction to the 5.80 neighbourhood, recording at the same time fresh two-month highs and flirting with the 100-day SMA.

In the meantime, TRY lost already more than 6% since monthly peaks vs. the Greenback just below 5.45, always on the back of US-China trade jitters and their impact on the high-beta currencies.

In the domestic docket, Turkey’s Consumer Confidence ticked higher to 58.3 for the current month, while investors will close following headlines from the Jackson Hole Symposium that kicks in today as well as the speech by Fed’s Powell, expected tomorrow.

What to look for around TRY

The current preference for safer assets in response to the US-China trade war and fears of a technical recession at some point in the next couple of years in the US has undermined extra gains in the Lira. On another front, newly appointed Governor M.Uysal appears to have inaugurated an Erdogan-sponsored easing cycle following the recent interest rate cut by the CBRT. Whether this move was untimely (as regarded before the rate cut) it remains to be seen. Further moves from the CBRT include the reduction of the RRR in order to boost banks’ lending and give extra oxygen to the economy. In the meantime, TRY remains supported by the ongoing ‘hunt for yield’, as domestic rates still look attractive in spite of the recent cut. On the more macro view, the country needs to implement the much-needed structural reforms (announced in April) to bring in more stability to the currency and sustain a serious recovery in both economic activity and credibility.

USD/TRY key levels

At the moment the pair is gaining 0.95% at 5.7627 and a surpass of 5.7895 (monthly high Aug.22) would expose 5.8476 (50% Fibo of the May-August drop) and finally 5.9326 (monthly high Jun.14). On the other hand, immediate contention is located at 5.6814 (55-day SMA) followed by 5.5680 (200-day SMA) and then 5.4494 (monthly low Aug.8).