FxWirePro: USD/TRY still lingers at fresh all-time highs, breaks out of long lasting range as lira bulls give up momentum

The Turkish lira weakened sharply last week, with USDTRY surpassing 3.05 range and then 3.27 at one stage on Friday. Following on from the above explanation on EM FX, we note here that CBT is likely to be pushed into a corner by the widening interest rate differential.

It is one of the only remaining central banks around EM which is viewed by market participants as unable to hike rates because of political pressure.

Meanwhile, at USDTRY of 3.25, imported inflation pass-through will escalate to faster than 10% by next month (via a combination of year-on-year acceleration in commodity prices and change in the lira). We no longer expect any rate cuts from CBT this year, but we are still not forecasting actual rate hikes.

Technically, the current prices have consistently been spiking higher above DMAs after bouncing back on supports at 3.0924 and 3.0513 levels on daily terms.

Massive volumes formation on rising prices has also been in conformity to the robust uptrend.

RSI on both time frames is going out of the frame that signals the strength in rallies.

While %k crossover on stochastic even above 80's which is overbought zone indicates the intensified bullish momentum.

Most importantly, bulls continued traveling last month’s breach of long lasting range bounced trend of this pair, bouncing above upper range after testing support at 7EMA on monthly terms.

Unless markets calm down soon, USDTRY could continue to spike, and this will trigger another negative spiral between exchange rate and inflation. CBT will delay tightening policy and will attempt to calm things down by tweaking FX liquidity measures, which will likely not work.