EUR/TRY skyrocketed today after Turkish President Recep Tayyip Erdogan defended the massive and continuous interest rate cuts amid double-digit inflation. He said this is part of an "economic war of independence," rejecting calls from investors and analysts to adopt a different strategy.
Inflation is now near 20% in Turkey. Against any orthodox monetary policy practices, the Turkish central bank has cut interest rates by 400 bps since September, with the latest one being 100 bps, delivered last week. This, combined with investors' fear over the lack of independence of Turkey's central bank, has resulted in a 40% drop in the lira this year, and 20% since the start of last week alone.
Technical Outlook
From a technical perspective, EUR/TRY has been trading above an upside support line since Nov. 15, and today's rally took it above yesterday's high of 12.92, with the rate now trading slightly above 14.00. The picture looks as positive as it can get, and thus, we would expect the momentum to continue conquering fresh highs. With no prior highs or inside swing lows to mark any potential resistance zones, we will mark the psychological territories of 14.50 and 15.00.
To abandon the bullish case and start examining a bearish reversal, we would like to see the rate dropping back below 12.25, near Friday's low. The rate would already be below the aforementioned upside line and maybe the first confirmation of a lower low in a long time. The bears may dive towards Thursday's low, at 11.83, the break of which may allow extensions towards the inside swing high of Nov. 15, at 11.53, or the low of Nov. 12, at 11.27.
