Turkish Lira faces political and defensive pressures – USD/TRY uptrend seems to extend

Again Turkish lira is going under mild pressure, overturning recent rallies, as a military confrontation evidenced Turkish forces shoot down a Russian fighter jet , which could potentially lead to diplomatic escalation involving entire NATO. The USDTRY currency cross has actually entered a new zone after military conflict between Turkey and Russia.

In addition to that the market's concerns about President Erdogan taking in charge over policymaking was certain through the proposal of the new cabinet yesterday, which left out ex-head of economic policy, Mr Ali Babacan (who held high credibility among foreign investors for his 'balanced' and centrist stance).

The role of economic policy head and head of the Treasury will be carried out by ex-FM, Mehmet Simsek, who is also renowned personality to investors. Most named ministers are close to President Erdogan.

The re-nomination of CBT Governor, Erdem Basci, after his term expires in April 2016, has become unlikely.

The overall picture supports our base-case that we are set for strong pro-growth policies from this new cabinet, and a push to lower average interest rates in the economy; bringing down inflation is unlikely to be the primary focus.

Since September-2015, we've been firmly bullish that is articulated in our every post about USD/TRY. The driving force was majorly due to the technical structure of the monthly USD/TRY charting pattern though, where it wasn't coupled with the fundamental composition. For now, we could still foresee USDTRY at around 3.20 by end-2016.