USD/TRY grinds near record high as Turkish elections tease Presidential runoff vote

• USD/TRY clings to mild gains after retreating from all-time high.
• Turkish elections fail to provide any clear results even if President Erdogan appears slightly ahead.
• Mixed sentiment, cautious mood ahead of May 28 runoff elections prod Turkish Lira bears.
• US debt ceiling updates, US Retail Sales and Fed Chair Powell’s speech eyed ahead of May 28 Presidential Vote.

USD/TRY justifies a hint of political deadlock in Turkiye as Sunday’s general elections failed to provide any clear winners, per the 99% votes counted by early Monday in Europe. In doing so, the Turkish Lira (TRY) pair also bears the burden of a likely Presidential runoff voting, up for May 28. However, the recent retreat of the US Dollar, amid cautious optimism surrounding the US debt ceiling extension, appears to prod the pair buyers as they keep the record high on their radar.

Although the incumbent Tayyip Erdogan got near 49.44% votes in the latest elections, the rival Kemal Kilicdaroglu also got 44.86% ballots per the latest readings, which in turn suggests that neither Erdogan nor his rival cleared the threshold to win outright on Sunday. The same raises the possibility of a Presidential Vote on May 28. It’s worth noting, however, that the ruling alliance has major shares in the latest Parliamentary elections, which were also held on recently, which in turn allows Erdogan to remain hopeful. “The People's Alliance comprising Erdogan's Islamist-rooted AKP and the nationalist MHP and others appeared to have fared better than expected and be headed for a majority,” said Reuters.

On the other hand, the US Dollar Index (DXY) retreats from a five-week high to 102.60 by the press time, after posting the biggest weekly gains since late 2022 in the last. The DXY’s pullback could be linked to the market’s cautious optimism as US President Joe Biden said during the weekend that he expects to meet with Congressional leaders Tuesday for talks on a plan to raise the nation's debt limit and avoid a catastrophic default. Also taming the risk-off mood could be the comments from US Deputy Treasury Secretary Wally Adeyemo while speaking at the CNN interview as he said, “The congressional staff has been "constructive," as the two sides seek a deal to avert a possible first-ever US default on June 1.”

Elsewhere, hawkish Fed talks and mostly upbeat US data also keep the USD/TRY pair directed towards the all-time high marked the previous day near 20.40. That said, Fed Governor Philip Jefferson and St. Louis Fed President James Bullard defend the US central bank’s current monetary policy while citing higher inflation as a major challenge. On the same line, Fed Governor Michelle Bowman said Friday, “Policy rate will need to remain sufficiently restrictive for some time.”

Against this backdrop, S&P500 Futures struggle near 4,138 after a two-day downtrend whereas the US 10-year and two-year Treasury bond yields remain sidelined around 3.46% and 3.98 respectively, after rising the most in three days on Friday.

Moving on, USD/TRY traders should pay attention to US debt ceiling talks, US Retail Sales for April and Friday’s speech from Fed Chair Jerome Powell for clear directions. Above all, May 28 Presidential Vote will be the key for the Turkish Lira pair Erdogan’s re-election means no rate hike and a further run-up by the pair.

Technical analysis

An upward-sloping trend line from late June 2022, around 19.35 by the press time, appears the short-term key support for the USD/TRY sellers to break to retake control. Until then, The Turkish Lira (TRY) bears are on their way to refreshing the record high, marked the previous day near 20.42.