USD/TRY climbs to daily highs near 6.13, Lira plunges

• The Turkish currency drops more than 2% vs. the greenback.
• Finmin B.Albayrak sees a significant drop in inflation by year-end.
• Uncertainty remains around potential US sanctions.

The Turkish Lira is quickly losing ground on Monday, lifting USD/TRY to fresh tops in the 6.13 region up more than 2%.

USD/TRY now targets YTD highs near 6.25

TRY is reversing Friday’s sharp pullback, managing to rebound from the boundaries of the 21-day SMA near 5.9400 and reaching the 6.1300 region.

Trade jitters following the lack of progress in the US-China talks in Washington last week plus threats from the White House to impose tariffs on all Chinese imports staring in August have been keeping the riskier assets under further pressure in past hours.

In addition, and in the domestic scenario, uncertainty prevails amidst the rerun of the municipal elections in Istanbul on June 23. Further news noted Finmin B.Albayrac now sees consumer prices dropping significantly by year-end along with better conditions in the labour market.

In the docket, the Current Account deficit shrunk to $0.59 billion during March (from $0.72 billion). Later in the week, Industrial Production is due tomorrow followed by Retail Sales, Jobless Average and Budget Balance on Wednesday and End Year CPI Forecast on Thursday.

What to look for around TRY

The Lira is seen under increasing selling pressure for the time being. The broader sentiment around the EM FX space should continue to influence on TRY via rising uncertainty around the US-China trade talks. In addition, friction between the AKP and its main opposition party ahead of the municipal elections in Istanbul is also emerging as another source for Lira weakness. Further out, potential US sanctions following the purchase of the Russian missile defence system keeps lingering over the country as well as sanctions over Iranian crude oil exports. Adding insult to injury, the independence and credibility of the CBRT should remain under the microscope against the omnipresent conflict between the Erdogan’s administration and bank’s authorities.

USD/TRY key levels

At the moment the pair is gaining 2.10% at 6.1051 and faces the next hurdle at 6.2457 (2019 high May 9) seconded by 6.8353 (high Aug. 30 2018) and finally 7.0831 (all time high Aug.13 2018). On the other hand, a breach of 6.0634 (200-hour SMA) would aim for 5.9397 (21-day SMA) and then 5.7094 (low Apr.17).