USD/TRY challenges 3-day lows near 5.5400

• USD/TRY met resistance around 5.6200, drops afterwards.
• Turkey CPI rose 16.65% YoY, 1.36% inter-month in July.
• US ISM Non-manufacturing coming up next on the docket.

The Turkish currency has managed to trim initial losses around the 5.62 area vs. the greenback and is now taking USD/TRY to the area of 3-day lows around 5.5400.

USD/TRY weaker after CPI

TRY advanced further today after domestic inflation figures gauged by the CPI rose 16.65 on a year to July, a tad below estimates albeit higher than June’s 15.72% advance. On a monthly basis, consumer prices rose 1.36%, also below consensus but up from the nearly flat reading from the previous month.

Additional data saw Producer Prices contracting 0.99% MoM and rising 21.66% from a year earlier.

Back to the Turkish central bank (CBRT), earlier today it raised the Reserve Requirement Ratio for FX deposits/participation funds by 100 bps for all maturity brackets. The CBRT added it expects to withdraw around $2.1 billion of FX liquidity from the market.

In addition, TRY remains vigilant on the geopolitical front, as US and Turkey officials will meet today in Ankara to discuss a safe zone in northern Syria.

Moving forward, June’s Current Account figures will be the only release of note (Friday).

What to look for around TRY

The Lira continues to digest very well the large interest rate cut by the CBRT last week. Newly appointed Governor M.Uysal appears to have inaugurated an Erdogan-sponsored easing cycle. Whether this move was untimely (as regarded before the rate cut) it remains to be seen. In the meantime, TRY remains supported by the ongoing ‘hunt for yield’, as domestic rates still look attractive in spite of the recent cut. TRY, however, is expected to closely follow developments from the trade front, particularly after the recent implementation of new US tariffs, and geopolitics in the Middle East, involving Russia, Syria, Turkey, Iran and the US. On the more macro view, the country needs to implement the much-needed structural reforms (announced in April) to bring in more stability to the currency and sustain a serious recovery in both economic activity and credibility.

USD/TRY key levels

At the moment the pair is losing 0.08% at 5.5394 and faces the next support at 5.5151 (monthly low Jul31) followed by 5.2918 (monthly low Mar.29) and then 5.1594 (2019 low Jan.31). On the flip side, a surpass of 5.6532 (21-day SMA) would expose 5.7727 (high Jul.25) and finally 5.7849 (monthly high Jul.8).