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

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.

FOREX 8

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.


More from Forex

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.