Market Analysis

Will the Turkish lira continue to weaken?

Since the dispute between Donald Trump and Mr. Erdogan in August last year, Turkey has been in a crisis. At the time there was even talk of this misery spreading to other emerging countries. At the moment, however, one might almost think that Turkey has entered a phase of calm in the financial markets if it were not for last week’s news that Turkey has been in recession since the end of the last quarter of 2018.

Countless companies are struggling after last year’s dramatic currency slump. Turkish companies often need foreign currency loans to finance their operations. Last year’s devaluation of the Turkish lira by almost 30 percent made it more difficult for companies to service their foreign currency debts.

This could lead to an increase in the number of non-performing loans, with the result that the banks will further limit new credit leading to a further contraction in economic output.

Can the lira stabilise in these economic conditions?

The chart’s technical picture shows a USDTRY rebound since early February. Slowly the currency pair has worked its way up and is currently at an important structural level between 5.47 and 5.49. This range could be decisive for further development of the currency pair.

If the pair fails to jump above this level, and if the current upward movement is corrected, the situation could deteriorate again. There may be support around 5.41, and if the market falls through here, the structural level in the 5.36 range could provide support for the pair. If the bears stay in control the market may find support in the 5.32 and 5.28 area.

However, if the currency breaks through the 5.47 to 5.49 band, the price could continue to recover and could find resistance in the 5.54 area on its way up. If the bulls break through this area, further structural levels can be found in the 5.57 and 5.61 regions respectively.

The MACD line is nearing its trigger line, and the histogram is falling.


USDTRY Daily Chart | Source: ActivTrader

USDTRY Daily Chart | Source: ActivTrader 


Written by Daniel Schuetz, External Analyst.

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