The TRY has been hit by a perfect storm of negative domestic developments and foreign factors, including a stronger USD, higher oil prices (affecting the current account negatively) and higher US yields.
However, even after the recent couple of days' rally, we think USD/TRY is overbought, with our short-term financial model pointing to a fair value of 3.13. In addition, the Turkish macro-economic situation remains quite resilient.
We see USD/TRY at 3.40 1M (previously 3.33), falling further to 3.30 in 3M, remaining at this level on a 6M basis, while increasing to 3.45 in 12M.
However, we note significant upside political risk to our USD/TRY forecast.
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