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After a brief halt in bullish streaks of USDTRY, bulls have resumed their business today, inching higher at 6.4466 levels.
The TRY crisis has not yet been overcome. Following the quiet holidays last-week the lira continued its decline again yesterday. Statements by Finance Minister and Presidential son-in-law Berat Albayrak, that he sees no big risks for the Turkish economy and the financial system, give market participants little hope that necessary reforms will be tackled in a timely manner.
Accordingly, fears on the market about how the currency turbulence in mid- August will be reflected in the upcoming data are increasing. The inflation data for August is due for publication next Monday. It will show how urgently monetary policy needs to react. It is very likely that at its next regular meeting on 13thSeptember the Turkish central bank will ignore this need to act thus cementing the continuation of the TRY crisis.
However, the effects of the lira depreciation of course far exceed the price data and will soon also be reflected in the real economy.
As one of the main factors affecting the current account, the trade balance will give a first impression of just how vulnerable TRY was at the end of July. This is due to the fact that foreign investors need attractive conditions to finance Turkey’s current account deficit.
As long as these external financing needs exist and the central bank does not offer attractive real interest rates the TRY crisis will not have been overcome on a sustainable basis so that the depreciation pressure on TRY will continue. Courtesy: Commerzbank
At spot reference: 6.8869 levels, contemplating above driving factors, on hedging grounds we advocate buying 3m USDTRY call option, short 1m put.
Currency Strength Index: FxWirePro's hourly USD spot index has shown -52 (which is bearish), while articulating at 13:15 GMT.
For more details on the index, please refer below weblink:
