The Turkish lira came under renewed selling interest during the European session Friday, with USD/TRY surging after hitting support near the crossroads of the 5.7000 barrier and the upside support line taken from near the low of the 1st of August. With no clear catalyst behind the move, this could be due to some liquidation of the latest lira long positions, or a delayed reaction to yesterday’s news that the US has threatened with more sanctions if Turkey does not release the detained American pastor soon. After all, the lira paused its recovery following the threats, before tumbling today.
The fact that the move had a spillover effect across other markets, with sentiment switching back to risk off at the time, shows that the latest measures by the Turkish central bank, as well as the headlines over the Qatar investment, were not enough to convince market participants that the worst is over. We stick to our guns that for any lira gains to stay sustainable, a clear resolution of the pastor’s case, as well as a massive rate hike by the Turkish central bank may be needed.
From a technical standpoint, the fact that USD/TRY rebounded from near the aforementioned trendline, keeps the pair’s outlook somewhat positive, in our view. If the bulls are willing to stay in the driver’s seat and push the rate above 6.3000, then we may see them aiming for our next resistance at around 6.5500, defined by the peak of the 15th of August. That said, in order to get confident on larger advances, we would like to see a decisive move above 6.6500. Such a break could encourage the bulls to target territories near the pair’s all-time high.
On the downside, we would like to see a clear dip below 5.7000 and the trendline mentioned above before we start assuming that the lira could recover further against its US counterpart. Such a dip could pave the way towards our next support zone of 5.4300, marked by the inside swing peak of the 6th of August. Nevertheless, even if this is the case, we see another upside support line from where the bulls could jump back into the game. That line is drawn from the low of the 24th of July.
