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Turkish Lire Rallies As CBRT Tightens.
Turkish Lire (TRY) gains as the Turkish Central Bank (CBRT) announces lifts the cost of borrowing liquidity from it.
The USD/TRY has fallen over 200 pips in the last hour after the CBRT increased the late liquidity window by 75 basis points (bp) to 11.75% late yesterday and just announced it would flow through to higher funding costs this morning. (see headline below)
14:03 (TR) Turkey Central Bank: Targets to increase avg funding cost by 40- 50bps – Decision to raise late liquidity window lending rate was meant to strengthen monetary tightening – Source TradeTheNews.com
The TRY has enjoyed a stellar performance since the no new news is good news of a couple of days ago. Rallying from 3.7600 to 3.6000 this morning, an impressive 4.2% in three days. The latest headline will add more fuel to the fire as yield-hungry investors look with glee at a yield curve that boasts rates over around 11% implied from 1 month to 5 years. Even the 10-year government bonds are still yielding just over 11% as of the close of trading yesterday.
The tightening is part of the process of holding up the currency as Turkey’s current account, and debt dynamics (it has a lot of USD denominated debt) means it is one of the most exposed countries to rising U.S. yields. The no surprises Fed did it a big favour on Wednesday night, and the short-term charts imply this can continue as the carry traders pile back in.
Looking at the hourly chart USD/TRY has support at 3.6000 with a break possibly triggering another round of stop loss selling.
Resistance is solid in the 3.6300 area and then just above 3.6700.
The daily chart also reveals some crucial support levels that are coming into view. At 3.5550 are we have a double bottom and the 200-day moving average. This is followed by 3.5000, where we have a series of daily lows from December.