USD/TRY most overbought since 2018 as the Turkish Lira falls to a record low

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The USD/TRY rose to a record high as tensions between Turkey and Western countries escalated.
Turkey provoked the USA and Europe to impose sanctions.
The Relative Strength Index (RSI) jumped to its highest level since 2018.

The Turkish Lira (USD/TRY) fell to its lowest level ever as traders responded to rising tensions between Turkey and Western countries. The pair is trading at 8.0876, the highest level ever recorded.

Turkish Lira Under Pressure

The Turkish lira has recently come under heavy pressure. This year the currency has fallen by more than 35% against the US dollar, the euro and the British pound. This decline makes the Turkish Lira one of the worst performing currencies in the world.

Analysts attribute the weakness of the lira to several reasons. Firstly, the Turkish economy was hit relatively hard by the coronavirus pandemic. In the second and third quarters, the country entered its first recession in more than a decade.

Second, the USD/TRY appreciated due to the measures taken by the Turkish central bank, which cut interest rates nine times. Today the country has one of the lowest interest rates in the world. Just last week, the central bank decided to leave interest rates unchanged at 10.25%, a surprise as analysts expected a 125 basis point increase.

A few hours later, lenders have borrowed more than $3.5 billion from the late liquidity window. In a statement following the interest rate decision, an analyst told Bloomberg:

“Political pressure was probably behind the central bank’s complicated decision. President Recep Tayyip Erdogan has loudly called for lower interest rates. Meanwhile, the pressure on the lira indicates that the financial markets are looking for a more restrictive policy”.

Thirdly, the bank has also intervened in the foreign exchange market by banning some international banks from short selling or trading the currency. While these measures were intended to keep the lira stable, they have reduced investor confidence in the currency.

Today the USD/TRY rose sharply due to Recep Erdogan’s comments yesterday. In a speech he called on the US and European governments to sanction the country. Over the weekend, France recalled its ambassador in Ankara after Erdogan mistreated the French president. He also provoked the USA to impose sanctions in connection with the crashes in Nogorno and Karabakh. The country has also supplied weapons to the armed forces in Azerbaijan.

Technical outlook USD/TRY
Technical Table USD/TRY

The USD/TRY price rose sharply today. On the weekly chart we can see that the pair is trading above its short term and longer term moving averages. The Relative Strength Index (RSI) has also jumped to its highest level since August 2018. The price is also above the previous support level of 7.1480. Therefore, the path of least resistance is higher, indicating that the price will continue to rise.

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