USD/TRY drops to daily lows near 5.80 on renewed Lira-buying

The Turkish Lira keeps recovering ground lower following Monday’s ‘flash crash’ and is now dragging USD/TRY to the 5.80 neighbourhood.

USD/TRY focused on trade headlines, data

Spot is flirting with the 100-day SMA around 5.79 amidst a moderate recovery in TRY from lows beyond the psychological 6.00 mark recorded on Monday in response to a ‘flash crash’ early in the Asian trading hours.

The pair is prolonging the corrective downside despite the better tone in the Greenback. In addition, lack of headlines from the US-China trade war also appears to be sustaining the appetite for EM currencies

On the geopolitical scenario, Ankara and Moscow are likely to start negotiations regarding the purchase of Russian-made fighter jets anytime soon as well as discussions including deliveries and cooperation in electronic warfare.

The Lira is also supported by positive data in the domestic docket. Today, Economic Confidence surprised to the upside for the current month, advancing to 87.1 from 80.70. This upbeat result adds to Monday’s improvement in Capacity Utilization (76.6%) and Manufacturing Confidence (102.5).

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 interest rate cut by the CBRT earlier this month. Further moves from the CBRT included the reduction of the RRR in order to boost banks’ lending and give extra oxygen to the economy. In the longer run, however, TRY looks supported by the ‘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 losing 0.39% at 5.7999 and faces the next support at 5.6816 (55-day SMA) followed by 5.5771 (200-day SMA) and then 5.4494 (monthly low Aug.8). On the upside, a surpass of 5.9416 (61.8% Fibo of the May-August drop) would expose 6.0027 (‘flash crash’ Aug.26) and finally 6.1516 (high May 23).