USD/TRY Surges on US Rate Rise Forecast

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US Dollar (USD) on Wednesday rose sharply against the Turkish Lira (TRY) after the Federal Reserve’s announcement to reduce the Quantitative Easing (QE) and Yellen’s unexpected remarks about the first interest rate hike. The pair is poised for a major upside breakout.

Technical Analysis

USD/TRY is being traded around 2.2365 at 07:30 GMT in Asia. The pair is expected to face immediate hurdle near 1.2465, the channel resistance of the rising wedge formation on the daily. A break and daily closing above the 1.2465 resistance shall push the pair into relatively stronger bullish trend targeting the all-time high level 2.3891.

On the downside, the pair might find support around 2.2133, the 23.6% fib level, ahead of 2.2037 that is the channel support of the wedge. A daily closing below the channel support could open doors for 2.1610.

Major Upcoming Reports in Turkish Basket

On March 25, Turkey’s central bank is due to release the business confidence report. According to the forecast of different analysts, the business confidence rose to 108.17 in March compared with 104.6 in the previous month. The same day, Turkey’s capacity utilization report is also scheduled for release; analysts have predicted 73.01% reading for March compared with 73.3% in the previous month.

On March 28, the central bank will release the consumer confidence report for the month of March. The consumer confidence rose to 73.1 points in March compared with 69.2 points in the previous month. Better than expected Turkish reports will be seen as bearish for USD/TRY and vice versa.

Fed Tapering

The Federal Reserve reduced the pace of the monthly stimulus by $10 billion to $55 billion, on the third monetary policy meeting in a row. The tapering decision signaled that the economy was recovering rapidly from the 2008 recession even without the stimulus. The US Dollar (USD) shot up against major peers after the tapering decision. The same trend might continue in the near future, keeping USD/TRY under considerable buying pressure.

Surprise Remarks by Yellen

Janet Yellen surprised the financial markets yesterday at her first press conference as Fed chief. She said the central bank might consider the first increase in the benchmark interest rate as soon as the next six-month period. The remarks were totally opposed to the forward guidance. The central bank had repeatedly assured that the interest rate would remain unchanged at the record low level of 0.25% well after the unemployment rate falls below the 6.5% threshold. In other words, Yellen’s remarks scrapped the forward guidance, leaving investors in an absolute shock.

What Does Tapering Mean for Turkey

In 2008 when the Federal Reserve launched the QE program worth $85 billion to cope with the recession, Turkey and other emerging-market economies witnessed huge capital inflows amid rapid Foreign Direct Investment (FDI). Now with gradual trimming in the stimulus by the Fed, the whole process is being reversed in the emerging-market economies, leaving their currencies vulnerable.

To contact the writer of this story: Usman Ahmed at usman@forexminute.com