USD/TRY resumes the upside and re-tests 8.40

• USD/TRY met support in the 8.00 neighbourhood so far this week.
• The lira gained around 5% on Monday following CBRT news.
• All the attention is once again on the CBRT and potential rate hikes.

The Turkish lira fades part of Monday’s gains and motivates USD/TRY to resume the upside to as far as the 8.40 region on turnaround Tuesday, where some initial resistance seems to have emerged.

USD/TRY now looks to CBRT

The lira posted the largest single day advance vs. the dollar since the summer of 2018 on Monday after market participants (initially) perceived as positive news that President R.T.Erdogan fired Governor M.Uysal on Saturday, replacing him with N.Agbal. In addition, former finance minister and Erdogas’s son-in-law B.Albayrak stepped down on health conditions on Sunday.

Governor N.Agbal is known by his strong opposition to Uysal’s policies of back-tightening and FX interventions to defend the domestic currency.

Agbal is now expected to be under the investors’ microscope amidst the urgent need of structural reforms in the country as well as, at least, a 500 bps interest rate hike. The latter could be announced at the bank’s November 19 meeting, although bets for an emergency rate hike sooner keep rising.

In the meantime, the lira has depreciated more than 30% (considering Friday’s all-time lows) and remains by far the worst performing EM currency. In light of the recent events, Turkey’s 5-year Credit Default Swaps (CDS) receded to levels last seen in late October around 514.

USD/TRY key levels

At the moment the pair is gaining 2.40% at 8.2350 and faces the next hurdle at 8.5777 (all-time high Nov.6). On the downside, a drop below 7.9876 (low Nov.9) would expose 7.7916 (55-day SMA) and finally 7.7787 (low Oct.22).