USD/TRY off daily highs above 5.66, still up by around 2%

• The Turkish currency remains on the defensive.
• The pair moves to fresh 4-day highs beyond 5.66.
• All eyes on the municipal elections on Sunday.

The Turkish Lira remains week in the second half of the week, pushing USD/TRY to fresh multi-day highs beyond 5.6600 the figure although losing some momentum afterwards.

USD/TRY focused on politics

The selling pressure around TRY stays far from abated at the end of the week, always on the back of rising concerns over the financial health of the country at a time where its economy is already navigating in the recession territory.

In fact, souring sentiment around the EM FX space on the back of stronger greenback and amidst rising concerns over a global slowdown has been weighing on the Lira in past sessions, pushing spot to fresh 2019 highs near 5.85 during last week.

Additionally, efforts from the CBRT to control de sell off in the currency has been draining FX reserves and adding to the already worrying domestic scenario.

Also collaborating with the selling sentiment, Ankara insisted on buying a Russian arms system, ignoring US warnings of potential sanctions.

In the near future, all eyes will be upon the municipal elections on Sunday, regarded by the financial world as a test of President Erdogan’s government.

What to look for around TRY

The Lira is expected to remain under pressure in the near to medium terms, always tracking the performance of the risk-associated complex and specifically around the EM FX universe. The next key event in Turkey will be the municipal elections (Sunday), considered crucial as the much-need structural reforms are expected to kick in soon afterwards. Furthermore, TRY will remain in the centre of the debate ahead of the elections, as unwelcomed weakness in the currency could prompt an emergency rate hike by the CBRT. This scenario will surely collide with Erdogan’s intentions of lower rates and undermine at the same time the efforts of the economy to recover from the current recession.

USD/TRY key levels

At the moment the pair is gaining 2.00% at 5.6427 and faces the next hurdle at 5.6659 (high Mar.29) seconded by 5.8413 (2019 high Mar.22) and finally 5.8707 (high Oct.23 2018). On the downside, a break below 5.4737 (200-day SMA) would expose 5.3522 (55-day SMA) and then 5.2918 (low Mar.26).