FxWirePro: USD/TRY diagonal put option spreads for hedging ahead of CBRT

It is quite surprising that the lira not rallying at all on Friday following the release of Pastor Andrew Brunson. In our preview of the court case, we had anticipated USDTRY to fall even as far as 5.50 in the event of a positive outcome – but this did not occur. The topic became debatable later yesterday as the lira indeed began to rally strongly. 

In our stance, this rally can continue until 25 October in particular, because CBT is likely to additionally hike rates by another 300bps on that day. This is the next milestone for now. If the central bank does not disappoint, the lira could remain stable for longer. If, however, CBT gets complacent because of the ongoing lira rally and hikes less, or leaves rates unchanged, the lira weakness is very likely to resume.

We remain UW TRY in the GBI-EM model portfolio. The authorities have now delivered steps in the right direction but many challenges remain. Inflation surprised significantly to the upside in September and the large debt burden is still likely to cause renewed bouts of stress, in our view.

At spot reference: 5.7715 levels, contemplating above driving factors, on hedging grounds we initiate RV trade - 3m USDTRY put up-and-in Short 1m put. Courtesy: JPM, Commerzbank

Currency Strength Index: FxWirePro's hourly USD spot index has shown -103 (which is bearish), while articulating at 14:16 GMT. 

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

http://www.fxwirepro.com/currencyindex