USD/TRY drops to 5-week lows in sub-5.90 levels

• USD/TRY extends the breakdown of the 6.00 handle.
• TRY appreciates to the highest level in 4 weeks vs. the buck.
• GDP, PMI, CBRT’s FSR next of relevance in the docket.

The Turkish Lira is sharply higher vs. the greenback on Thursday, dragging USD/TRY to new multi-week lows in sub-5.87 levels.

USD/TRY keeps looking to trade, risk trends

The Turkish Lira is extending the upbeat tone so far on Thursday, dragging spot to clinch its fifth consecutive drop after climbing as high as the 6.15 area during last week.

Today, TRY is gaining extra ground after President R.Erdogan and his US counterpart D.Trump agreed on Wednesday to meet at the next G-20 meeting in Japan in June. The constructive tone from the talks helped to allay concerns over potential US sanctions, lending some wings to the Lira.

On another direction, TRY is deriving extra support after the CBRT increased by 200 bps the RRR for FX deposits/participation funds on Monday.

Moving forward, TRY is expected to remain under scrutiny as Q1 GDP figures are due tomorrow seconded by manufacturing PMI and the Financial Stability Report (FSR) by the central bank (CBRT).

What to look for around TRY

The buying interest has been gathering traction around the Turkish so far this week, motivating the pair to extend the rejection from last week’s tops. As usual, trade effervescence should remain as key driver in the EM FX space, while frictions between the AKP and its main opposition party in the run up to the municipal elections in Istanbul are also emerging as another source for Lira volatility. Further out, potential US sanctions following the purchase of the Russian missile defence system keeps lingering over the country as well as sanctions over Iranian crude oil exports. Additionally, the independence and credibility of the CBRT should remain under the microscope against the omnipresent conflict between the government and the bank’s authorities. Recently, another focus of attention has emerged after the IMF urged the government to start implementing reforms aimed to bring back stability to the country’s fundamentals.

USD/TRY key levels

At the moment the pair is losing 2.20% at 5.8773 and a breach of 5.8153 (55-day SMA) would open the door to 5.7094 (low Apr.17) and then 5.6538 (200-day SMA). On the other hand, the next barrier emerges at 6.0475 (21-day SMA) followed by 6.1516 (high May 23) and then 6.2457 (2019 high May 9).