Turkey’s inflation data may embolden Erdogan

At the Central Bank of Turkey’s last meeting, members decided to cut the interest from by 200bps, from 18% to 16%. Expectations were for a cut of only 50bps. They did this even though inflation rose to 19.58%, its highest level since March 2019. Why did they do this? As my colleague Matt Weller pointed out, Turkey’s President Erdogan dismissed several of the central bank’s governors, including the only one who opposed a cut at the previous meeting. He replaced them with 3 handpicked successors and predictably, they cut rates. However, they cut my much more than expected.

What is inflation?

Today, Turkey released inflation data for October. The headline number was 19.89% YoY, slightly higher than September’s print of 19.58% YoY. This is the highest reading since January 2019. However, the inflation print beat expectations of 20.4% YoY, possibly because of the 200bps rate cut on October 21^st! The Central Bank of Turkey meets again on November 18^th. Based on the rate cut at the previous meeting, one could assume the 3 replaced governors will do as Erdogan wishes. Will the inflation beat give Erdogan a feeling confidence to cut interest rates again at the next meeting (although, of course, it’s not his decision)?

Trade USD/TRY now: Login or Open a new account!

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore

The weaker inflation data pushed USD/TRY to near all-time highs set on October 25^th, at 9.8496. On that day, price action formed a shooting star candlestick which indicated the pair was ready for a possible pullback, especially with the RSI in overbought territory and diverging from price! However, the pair thus far has beaten the analytics and traded as high as 9.7823 today.

Source: Tradingview, Stone X

On a 240-minute timeframe, above the highs from October 25^th, resistance is at the convergence of the 127.2% Fibonacci extension from the October 25^th highs to the October 26^th lows near 9.9844 and the phycological round number of 10.0000. The next resistance is at 161.8% Fibonacci extension from the same timeframe near 10.1353. Support is at the convergence of the October 26^th lows and an upward sloping trendline dating back to mid-September near 9.4297, then the October 20^th lows at 9.2049.

Source: Tradingview, Stone X

With Erdogan (unofficially) at the helm of the Central Bank of Turkey, today’s inflation data may give him reassurance that he is doing the right thing by having the central bank governors lower interest rates. However, if expectations are for more rate cuts, watch for USD/TRY push for stops above 10.000!

Learn more about forex trading opportunities.

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

City Index is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 28.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.