USD/TRY clinches 2-week highs above 5.7100

• TRY depreciates further to multi-day lows vs. USD.
• Politics, CBRT weigh on the Lira.
• Upcoming Putin-Erdogan meeting in focus.

The Turkish Lira is losing ground for the second session in a row today, lifting USD/TRY to fresh 2-week highs beyond 5.7100 the figure.

USD/TRY up on politics, CBRT

The Turkish currency is losing further ground at the beginning of the week after domestic political jitters re-emerged in the wake of last week’s municipal elections. In fact, Erdogan’s AKP announced it detected ‘irregularities’ in the election results in Istanbul and Ankara and said it applied to the major election body to contest the results.

Adding to TRY weakness, the Turkish central bank (CBRT) has adjusted its liquidity provision mechanisms by resuming its One-Week Repo auctions (which suspended in late March) at 24% and by lowering the One-Week USD/TRY swap rate to 24% from 25.5%, aimed to re-establish the WACF (Weighed Average Cost of Funding) at its original level and at the same time regarded by market participants as some sort of monetary easing.

On the political/geopolitical front, today’s meeting between Presidents Erdogan and Putin should grab all the attention, particularly after last week’s news surrounding the purchase by Turkey of a Russian missile defence system.

What to look for around TRY

The Lira is expected to remain under pressure in the near to medium terms, always tracking the performance of the risk-associated complex and specifically around the EM FX universe. Following recent municipal elections, the centre of the debate will now be on the implementation of (promised) 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. However, the geopolitical factor involving US and Israel and the issues around the country’s intention to buy a Russian missile defence system could open the door for US sanctions, putting the Lira under extra pressure.

USD/TRY key levels

At the moment the pair is gaining 1.24% at 5.6894 and faces the next hurdle at 5.7115 (high Apr.8) seconded by 5.8413 (2019 high Mar.22) and finally 5.8707 (high Oct.23 2018). On the downside, a break below 5.5019 (200-day SMA) would open the door to 5.3765 (55-day SMA) and then 5.2918 (low Mar.26).