USD/TRY approaches 6.00 on further Lira weakness

• The pair moves to fresh YTD highs beyond 5.9800.
• US-Turkey tensions over F-35 jets keep growing.
• CBRT could tighten its monetary conditions further.

The Turkish Lira remains in free-fall so far this week and it has lifted USD/TRY to new yearly highs beyond the 5.9800 handle earlier in the session.

USD/TRY now targets 6.00

The selling pressure around the Turkish currency has gathered extra traction today after President Erdogan criticized US intentions to expulse the country from the F-35 jets programme, opening the door for potential sanctions. It is worth mentioning that the effervescence between the two countries has been swelling after Turkey announced the purchase of the Russian S-400 missile defence system in past weeks.

In further news, Governor Cetinkaya deemed as probable a new tightening cycle in the economy, while today’s Inflation Report by the CBRT noted consumer prices are expected to raise at an annualized 14.6% by year-end, 8.2% at the end of 2020 and 5.4% by end 2021. Food prices, import prices and the weaker currency are cited as the main concerns threatening the forecasts for inflation.

The CBRT also published its minutes from the last meeting. In them, the central bank defended its decision to keep the tight monetary policy conditions unchanged amidst rising inflation expectations derived from higher food and import prices.

In the data space, Turkish trade deficit widened a tad to $2.14 billion during last month.

What to look for around TRY

The Lira is expected to remain under heavy pressure for the foreseeable future. While the broader sentiment around the EM FX space is seen influencing on TRY, domestic drivers would also collaborate with the price action. Among these factors is the ongoing uncertainty around the possibility of a rerun of the mayoral elections in Istanbul, threats of US sanctions over the purchase of a Russian missile defence system and the progress in the implementation of the recently announced structural reforms, conditio sine qua non for the start of a sustainable economic recovery and a return of the confidence in both the currency and the country. In addition, TRY could see some acceleration of the selling impetus in response to the omnipresent conflicts between the Erdogan’s administration and the CBRT, which could undermine the independence of the central bank.

USD/TRY key levels

At the moment the pair is gaining 0.23% at 5.9588 and faces the next up barrier at 5.9847 (2019 high Apr.30) seconded by 6.2277 (monthly high Oct.4 2018) and finally 6.5497 (high Sep.13 2018). On the other hand, a break below 5.8755 (200-hour SMA) would open the door for 5.7667 (21-day SMA) and then 5.7094 (low Apr.17).