FxWirePro: USD/TRY intricacies and options trading perspectives

USDTRY has resumed its bullish streaks with the current price at 5.6909 levels, the major uptrend of this pair bounce back at 9EMA support after 3-black crow pattern.

Most noticeably, the Turkish lira experienced volatility again late last week: on Thursday the exchange rate rallied sharply in a move reminiscent of days when policymakers had intervened in the London swap market by reducing lira supply. 

But, the rally did not last long – on Friday, the exchange rate returned to its weakening ways. The exact trigger is difficult to pinpoint: it could have been President Erdogan’s announcement that Russian S400 deliveries were likely to begin in July – this may have prompted fears that the US administration could impose sanctions. 

Such exact triggers can only be discussed ex-post – in general, most market participants know fully well that Turkey occupies a complex geopolitical position – it makes no sense to be surprised by individual announcements which simply reflect that reality from time to time. The relevant conclusion for the FX market is that the recent swap market interventions have not ‘shocked’ or ‘disciplined’ the market in a manner that the lira’s medium-term depreciation trend has gone away.

Trade tips: 3m USDTRY debit call spreads are advocated with a view to arresting upside risks. Initiate 3m 5.30/6.54 call spreads at net debit. Thereby, one achieves hedging objective as the deep in the money call option with a very strong delta will move in tandem with the underlying spikes.

The rationale for the trading: Please observe that the above technical chart is also clearly indicating the further upside risks. 

It seems that hedgers of TRY are interested in bullish risks as the positively skewed IVs indicate bids for the OTM calls with the above fundamental factors.

IVs of this underlying pair is on the higher side, trending highest among the G20 FX space. Call options with a higher IVs cost more, because, increasing IV is desirable for the holder of the option, just for the intuition that the higher likelihood of the market ‘swinging’ in holder’s favor. Please also be noted short-dated options are less sensitive to IV, while long-dated is more sensitive. Courtesy: Sentry & Tradingview.com

Currency Strength Index: FxWirePro's hourly USD spot index is flashing -47 (which is bearish), at press time 13:13 GMT). 

For more details on the index, please refer below weblink: http://www.fxwirepro.com/currencyindex