Date: 13 May 2019

The announcement of a new local election in Istanbul last week put the Turkish lira back into turmoil at short notice. The Turkish lira became increasingly expensive against the US dollar.

As the Financial Times reported last Friday, the Turkish central bank is said to have tried to prevent further depreciation of the Turkish lira with short-term dollar loans. According to the newspaper, state banks bought lira worth at least US$1 billion. After a rise to over 6.24 on Thursday, the USDTRY currency pair closed Friday just below the 6.0 mark.

As early as April, the FinancialTimes asked whether the increase in short-term borrowing by the Turkish central bank was simply an attempt to conceal the decline in net currency reserves.

The question that arises in this context is whether the Turkish central bank can make further interventions or whether the currency reserves are too scarce. Furthermore, the political situation is likely to shake investors up. With the prospect of local elections in Istanbul the hoped-for political stability, that is so urgently needed, becomes more distant.

A glance at the chart shows that, after the peak of August 2018 and the subsequent recovery of the lira, the USDTRY currency pair has again broken away from the 5.24 level since the beginning of May and has tried to return to the August 2018 highs with a jump above the 5.68 level. The area around 6.23 was able to stop the market‘s upward movement for the time being. It has dropped back to the critical 6.00 level.

If the bears prevail, support zones could appear in the 5.68, 5.24 and 4.80 areas.

For prices to continue rising, the market must defend the level around 6.00 lira. Then there could be resistances at 6.23, 6.53, 6.72 and 6.88 before the market hits the old highs.

The MACD oscillator is in positive territory, but with a slight tendency to turn in. However, it cannot be ruled out that this is due to Friday’s sharp downward movement.

 

USD/TRY - daily chart. Source: ActivTrader

USD/TRY Daily Chart | Source: ActivTrader

 

Written by Daniel Schuetz, External Analyst, ActivTrades

*The information provided does not constitute investment research. The material has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and as such is to be considered to be a marketing communication. All information has been prepared by ActivTrades PLC (“AT”). The information does not contain a record of AT’s prices or an offer of or solicitation for a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. Any material provided does not have regard to the specific investment objective and financial situation of any person who may receive it. Past performance is not a reliable indicator of futures performance. AT provides an execution-only service. Consequently, any person acting on the information provided.