USD/TRY likely to settle at about 3.10 late next year

Turkish Lyra might not trade back below 3. differentials alone would take fair value to well over 3.00. Also, the continuing support from EU on the referee crisis may fade given Erdogan's support for fighting Kurds across border.

Russian war plane's shootdown may not support in terms of geopolitical escalation. The markets might eventually expect a non trivial possibility that the West may run out of patience with Erdogan's fuzzy tricks in Syria and Iraq.

The country's non financial corporate debt rose to 56% of GDP since 2007 which is the highest ratio for higher yielding EM markets, as local interest rates are quite higher, most of the financing took place in USD.

Meanwhile the central bank has barely accumulated FX reserves. The public debt ratios have improved in the last decade. This may mean sovereign help if and once the private sector runs into trouble. 

"We therefore expect USD/TRY to settle at about 3.10 late next year", says RBC Capital Markets.