Another month of 2018 as USD/TRY bulls’ uproar continues – FxWirePro’s hedging vehicles functioned productively on imminent bullish risks

The stunning news among EMFX about an exponential process is: what seemed dramatic on Friday (the 14% depreciation in USDTRY and 14.45% in EURTRY) seems harmless in retrospective. This morning USDTRY opened over 6.4118 level during Asian trading session, bullish streaks continued currently trading at 6.9997 levels.

Before we proceed further let’s just quickly glance through our recent post on this pair wherein we’ve highlighted potential bullish risks and also suitable hedging strategies were advocated in order to keep these risks on the check, please follow below weblinks for the same:

https://www.econotimes.com/FxWirePro-USD-TRY-1m-forwards-and-IV-skews-signal-still-bullish-risks-Hedge-Turkish-lira-on-uncertainty-between-CBRT-and-Erdogans-commentaries-1402486

https://www.econotimes.com/FxWirePro-Turkish-Lira-still-seems-vulnerable--Bid-2m-USD-TRY-IV-skews-and-forward-rates-and-hedge-1405088

Well, ever since then the underlying pair (USDTRY) has shown vigorous spikes from the lows of 4.6187 levels to the current 6.9997 levels. By now, the above strategies have fetched desirable yields, rest is history.

There are quite a few considerable purposes as to why the Turkish lira to collapse to take a short breather this morning. Two factors could lead to short term relief: 

1) According to press reports the Turkish banking regulator BDDK yesterday limited the volume for FX spot, forward and swap trades that Turkish banks are allowed to execute to 50% of the bank’s equity capital. 

2) Finance Minister Berat Albayrak announced a statement for today. According to press reports he wants to present an “action plan to fight the crisis”. 

The other trivial factor is that the threats are not stabilizing: the CBT’s decision to lower the domestic banks’ reserve requirement. This step is only showing how much the Turkish banking system already is in trouble. 

Hence, we would like to remain long hedge in this pair using 2m USDTRY ATM +0.51 delta call options.

Those who are dubious about any abrupt minor corrections from this level, can opt (2%) in the money call options of the same tenor. Deep in the money call with a very strong delta will move in tandem with the underlying.

Thereby, the above positions address both upswings that are prevailing and bearish risks in the short-run by delta longs.

Currency Strength Index: FxWirePro's hourly USD spot index has shown 72 (which is bullish), while articulating at 11:52 GMT. 

For more details on the index, please refer below weblink: 

http://www.fxwirepro.com/currencyindex