Turkish Lira jumps after EU deal, Russia continues to woe Turkish exports

The lira has been taming dollars Bull Run from last 3 days following prominent developments taking place recently:

namely, first aspect is that, significant deal Turkey struck with the EU, apparently backed by Germany, UK, France and Italy, wherein:

• The EU will retain 400 thousand Syrian refugees, and will pay Turkey EUR 3 bn to retain others.
   
• Turkey's EU accession process, which had remained frozen for many years, will now speed up; Chapter 17 on economic and monetary policy is set to be opened for negotiation next month, and preliminary assessment suggests that 7-8 chapters could be opened during 2016, if a peace deal with Cyprus can be struck by then. There is active discussion of such a deal, mediated by international leaders at present.
   
• Turks could gain access to visa-free travel to Schengen countries by October 2016.

The second factor is that the trade data highlighted a narrower deficit; but we think that this is the less significant driver, given that fresh Russian sanctions will impact exports, tourism and the current-account in 2016.

While Russian share of total Turkish exports is 2.5%, but it is 7%-8% for food and livestock, while Russians account for 12% of Turkish tourism.

Conclusion: A breakthrough in EU-Turkey relations at this crucial stage could be a big boost to investment sentiment on Turkey.

The most other fundamental factors are unhelpful at this time, rapid EU accession negotiations will promote the idea that reforms will take off automatically in Turkey to satisfy the conditions of EU accession, and that this will hold the government's radical plans in check.