Turkish Lira surged higher after an aggressive rate hike by the country's central bank. TCMB raised the key policy Overnight Lending Rate from the already high 7.75% to 12% following an emergency meeting to address the falling Lira that has been hurting market confidence and sending foreign funds out of Turkish borders. This move is welcomed by market participants who were getting impatient following an unorthodox monetary-policy tightening measures announced during the previous monetary policy meeting. However, is this move enough to keep Lira down for long? Or will economic weakness and slowing growth rates pull TRY down once more?
EUR/TRY Daily Chart
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Looking at EUR/TRY chart, we can see that price is currently below the 2.98 ceiling despite the initial pullback following the post rate hike sell-off. However, price is still within the consolidation zone seen from 1st - 14th Jan. Suggesting that bullish momentum is still intact. With stochastic readings currently dipping into the Oversold region, we should at the very least expect some form of bullish pullback especially after such a sharp move.
USD/TRY Daily Chart
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Price action on USD/TRY is similar to EUR/TRY - we are trading below 2.195 ceiling but above 2.16 floor. Hence the uptrend remains intact, and the likelihood of prices breaking 2.195 and continuing bullish push is high.
TRY/JPY Daily Chart
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TRY/JPY is showing similar problems - albeit in opposite direction. Prices have failed to test significant resistance of 48.0, while Stochasitc readings have yet to hit Overbought, it is likely that Stoch curve will be above 80.0 should prices test 48.0 (if it even happens to begin with). The comfort for TRY/JPY is that prices have at least managed to clear above the descending trendline, and it is possible that prices may find support against any bearish pullbacks moving forward.
So that is 3 out of 3 for Lira. None of the major pairs show any significant shift in direction despite the huge increment in Lira strength. Certainly shorting Lira has been made much more expensive right now, but based on current price action, only the most aggressive/optimistic of all carry traders would dare to go long on Lira right now. Hence, even if Lira won't depreciate from here, the likelihood of continued appreciation for the battered currency would be low in the most bullish scenario.
Problem solved? Far from it. TCMB needs to follow up this rate hike with other measures to ensure that market doesn't claw back the gains made. The worst thing that can potentially happen is seeing Lira unable to keep its strength but seeing the rate hike hurting the economy further. Perhaps TCMB should exchange notes with Reserve Bank of India who has somehow managed to keep Rupee stable without raising the rates too much (previously at 7.75% before raising it to 8.0% yesterday, exactly the same rate as Turkish before the hike).