USD/TRY clinches new 2022 peak near 18.00… again and again and again

• USD/TRY trades at shouting distance from the 18.00 mark.
• The lira depreciates to levels last seen in December 2021.
• Türkiye trade deficit shrank to TL8.17B in June.

Extra selling pressure around the Turkish lira encourages USD/TRY to advance closer to the 18.00 mark on Friday, recording at the same time fresh cycle highs.

USD/TRY now focuses on inflation data

Sellers seem to be quite comfortable around the Turkish lira, as USD/TRY remains on track to close the third consecutive week with gains amidst the broader 7-month positive streak. So far, the lira shed more than 35%.

In the meantime, the prospects for further tightening by the Federal Reserve is expected to keep the EM FX well under pressure for the remainder of the year, while the war in Ukraine also poses increasing risks for both the economic outlook for Türkiye and the currency.

In the domestic calendar, the trade deficit narrowed to TL8.17B in June, while Foreign Arrivals rose by 145% in the year to June. Earlier in the week, the Economic Confidence Index eased a tad to 93.40 in July (from 93.60).

Moving forward, the lira and investors are predicted to trade on a cautious mood ahead of the critical inflation figures due next week, all after the CPI rose nearly 80% YoY in June.

What to look for around TRY

The upside bias in USD/TRY remains unchanged and stays on course to revisit the key 18.00 zone.

In the meantime, the lira’s price action is expected to keep gyrating around the performance of energy prices, which appear directly correlated to developments from the war in Ukraine, the broad risk appetite trends and the Fed’s rate path in the next months.

Extra risks facing the Turkish currency also come from the domestic backyard, as inflation gives no signs of abating, real interest rates remain entrenched in negative figures and the political pressure to keep the CBRT biased towards low interest rates remain omnipresent. In addition, there seems to be no Plan B to attract foreign currency in a context where the country’s FX reserves dwindle by the day.

Key events in Türkiye this week: Trade Balance (Friday).

Eminent issues on the back boiler: FX intervention by the CBRT. 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. Structural reforms. Presidential/Parliamentary elections in June 23.

USD/TRY key levels

So far, the pair is gaining 0.14% at 17.9125 and faces the immediate target at 17.9519 (2022 high July 29) seconded by 18.2582 (all-time high December 20) and then 19.00 (round level). On the other hand, a breach of 17.1903 (weekly low July 15) would pave the way for 16.9316 (55-day SMA) and finally 16.0365 (monthly low June 27).