USD/TRY: Is the Turkish Lira a buy before the CBRT interest rate decision?


The USD/TRY has risen significantly this year due to pressure from the Turkish Lira.
The Central Bank of Turkey (CBRT) will announce its interest rate decision today.
Analysts expect the bank to raise the interest rate for the second consecutive month.

The USD/TRY price has hardly changed today as traders wait for the Turkish interest rate decision, which will be released later today. The pair is trading at 7.8155, which is well below the all-time high of 7.9575.

The Turkish Lira is under pressure
Decision of the Central Bank of Turkey

The Turkish Lira is one of the worst performing currencies in the world. Since the beginning of the year it has fallen by more than 32.5% against the US dollar and by 40% against the euro. It has also lost value against other emerging market currencies such as the South African rand and the Mexican peso.

The weakness of the lira is mainly due to the measures taken by the central bank, which has cut interest rates nine times. The bank has also taken several measures to curb short selling of the currency. Most importantly, the lira has fallen due to the damaging effects of the pandemic. The disease has infected more than 353,000 people in Turkey and killed almost 10,000.

The Central Bank of Turkey will announce its interest rate decision at 11:00 GMT. Analysts interviewed by Reuters expect the bank to raise interest rates for the second month in a row. They see an increase of 1.75% to 12.0%. They also see that the bank will raise its overnight lending and borrowing rates to 10% and 13% respectively.

Recent economic data speak for the interest rate increase. For example, retail sales rose 5.8% in August, the third consecutive month in which profits were made. Industrial production also rose 10.4% in August, after rising 4.5% the previous month. Most importantly, inflation is near 12%, making it ideal for interest rate hikes. And foreign investors have returned to the market, as recent developments in the bond market show. This month, JP Morgan enabled the sale of $2.5 billion worth of bonds.

In the meantime, traders have started to be bullish on the lira again. In a recent note, Thomas Clarke, a senior investment analyst at William Blair, described the currency as “significantly undervalued”. He said he had built a long position on the currency. He told Bloomberg that:

“It has been undermined by fears that the central bank under political influence will not tighten monetary policy sufficiently to contain high inflation.

Technical outlook USD/TRY
Technical Table USD/TRY

The four-hour chart shows that the USD/TRY pair has fallen from a high of 7.9574 to today’s low of 7.8153. The price has moved below the 15-day and 25-day Hull moving average. It has also moved below the rising range shown in red, while the Relative Strength Index (RSI) has moved to the oversold territory. It is located along the second support of the standard pivot points. Therefore, I suspect that the pair will continue to fall as the bears are looking to move below 7.800.


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