USD/TRY lurches higher as traders question the central bank’s independence, 10.00 next?

Perhaps for those used to trading the latest NFT or meme stock, the chart of USD/TRY may not look to unusual…but for FX traders, the ongoing collapse in the currency of a country in the top 20 of GDP is a truly astounding development.

What are Emerging Market economies?

Last week, my colleague Joe Perry identified the pair’s fresh record high on the back of geopolitical tensions and surging inflation, but the catalyst for the latest swoon in the lira is even more alarming. In a late-night decree on Thursday, Turkey’s President Recep Tayyip Erdogan dismissed several more of the central bank’s deputy governors, including the only one who opposed last month’s surprising interest rate cut.

In other words, traders’ fears that the nominally independent central bank is becoming hopelessly politicized are being realized, causing a widespread loss of confidence in the lira. According to central bank data, foreign investors held just $6B in government bonds at the halfway point of the year, down more than 90% from the $61.5B in Turkish bonds that foreign investors held as recently as 2013.

Turning our attention to the chart, USD/TRY is working on its seventh consecutive daily gain after blasting through the 9.00 level last week. With prices at a fresh record high, there are no levels of previous resistance nearby, though the 161.8% Fibonacci extension of the 3-month pullback that started this time last year looms up near 9.60 as a logical next target for bulls. Beyond that, the psychologically-significant 10.00 level may come into play next.

Source: StoneX, TradingView

It is notable that the 14-day RSI indicator is above 80, at an area that has previous marked short-term peaks in the USD/TRY exchange rate. That said, the country’s economic and monetary policy outlook hasn’t been this precarious before, so rates could certainly continue to surge regardless of an overbought reading on a technical indicator.

The next hurdle for the beleaguered currency is another CBRT monetary policy meeting on Thursday. Based on last week’s actions and the recent price action, investors a bracing for another interest rate cut, further deterioration in the value of the lira, and continued inflation in the country.

How to trade with City Index

You can trade easily trade with City Index by using these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the company you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

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.