USD/TRY likely to drop further below 7.3500 – MUFG

Shoring the USD/TRY is a trade idea that analysts at MUFG Bank are considering. They see the current policy from the Central Bank of the Republic of Turkey (CBRT) supporting a stronger Turkish lira. They see an entry-level at 7.40 with a target at 7.05 and stop-loss at 7.65. 

Key Quotes:

“We have been encouraged by the hawkish policy update from the CBRT. The new leadership at the CBRT continues to signal that they remain committed to tighter monetary policy to help restore confidence in the TRY and reduce the risk premium priced into Turkish assets. Even after comments from President Erdogan resuming his criticism of higher rates ahead of the meeting, the CBRT signalled more strongly that higher rates will persist for longer and adopted a tightening bias signalling that they would also raise rates further if required.”

“Higher yields on offer in Turkey are more attractive, although the TRY is no longer as undervalued.”

“USD/TRY is currently testing key support from the 200-day moving average at just above 7.3500-level, which if broken would open the door to a further lurch lower. We have been reassured as well by the recent resilience of the TRY to the move higher in US rates in comparison to other EM currencies such as the ZAR and BRL that were hit harder.”