USD/TRY retreats from tops near 7.6200

• USD/TRY reverses the recent downside and test 7.6200.
• Turkey Retail Sales expanded 0.3% in January.
• US flash Consumer Sentiment comes up next in the docket.

The recovery in the Turkish lira faces some headwinds on Friday, as the renewed buying interest in the dollar lifted USD/TRY to 2-day highs near 7.6200.

USD/TRY up on USD-strength

USD/TRY trades with strong gains and reverse three consecutive daily pullbacks amidst the resumption of the sentiment towards the greenback.

Indeed, the solid rebound in US yields lend extra legs to the dollar and prompt investors to accelerate the outflows from the risk-associated space. The narrative supporting a strong performance of the US economy amidst the firm pace of the vaccine rollout continues to underpin the buck despite President Biden signed the $1.9 trillion aid package on Thursday.

In the Turkish docket, Retail Sales expanded 0.3% MoM during January and 2.0% from a year earlier. Additional data saw Industrial Production expanding at an annualized 11.4% during the same period.

In the US, Producer Prices rose 0.5% MoM and 2.8% YoY. Core prices rose 0.2% MoM and 2.5% YoY.

What to look for around TRY

The lira reverses three sessions in a row with gains amidst further USD-strength. The improved sentiment in the dollar has been undermining the lira’s momentum since late February, which was sustained by the CBRT’s commitment to fight high inflation via an orthodox approach of the monetary conditions. Additionally, the central bank appears to have regained some lost credibility/independence during the past months and this is no minor issue considering the well-known opinion of President Erdogan when comes to higher interest rates. The lira will closely follow this theme in 2021 along with the Biden’s Administration stance on Turkey, the post-pandemic recovery and occasional bouts of geopolitical effervescence.

Eminent issues on the back boiler: Carry trade expected to benefit the lira into H2 2021. Potential US, EU sanctions against Ankara. Government pressure on the CBRT vs. bank’s credibility/independence. Bouts of geopolitical concerns. Much-needed structural reforms. Growth outlook vs. progress of the coronavirus pandemic.

USD/TRY key levels

At the moment the pair is up 1.47% at 7.5796 and faces the next hurdle at 7.7772 (2021 high Mar.9) followed by 8.0250 (monthly high Dec.7 2020) and finally 8.0423 (high Nov.24 2020). On the downside, a drop below 7.4079 (200-day SMA) would aim for 7.2197 (monthly low Mar.1) and then 6.8923 (2021 low Feb.16).