USD/TRY: Bulls regain the smile and resume the upside near 16.40

• USD/TRY fades Friday’s downtick and retests 16.40.
• Turkey 10y bond yields hover around 23.00%.
• Markets’ attention shifts to the CPI release on Friday.

The Turkish currency gives away part of Friday’s gains and pushes USD/TRY to the upper end of the range around 16.40 on Monday.

USD/TRY now looks to CPI

USD/TRY resumes the upside and leaves the May’s rally well on track to challenge the so far 2022 highs near 16.50 recorded on May 26. It is worth recalling that the pair closed with losses in just four sessions since the beginning of the month and the lira has so far shed nearly 24% in that same period.

The lira, in the meantime, remains well under pressure on the back of the deteriorated geopolitical background, elevated energy prices and high domestic inflation. On the latter, investors are expected to shift their attention to the publication of inflation figures for the month of May due later in the week.

What to look for around TRY

Despite Friday’s daily pullback, USD/TRY keeps the underlying upside bias well and sound and looks to consolidate the recent surpass of the 16.00 yardstick for the first time since late December 2021.

So far, price action in the Turkish currency is expected to gyrate around the performance of energy prices, the broad risk appetite trends, the Fed’s rate path and the developments from the war in Ukraine.

Extra risks facing TRY also come from the domestic backyard, as inflation gives no signs of abating, real interest rates remain entrenched in negative figures and the political pressure to keep the CBRT biased towards low interest rates remain omnipresent.

Key events in Turkey this week: Q1 GDP, Trade Balance (Tuesday) – Manufacturing PMI (Wednesday) – Inflation Rate, Producer Prices (Friday).

Eminent issues on the back boiler: FX intervention by the CBRT. Progress (or lack of it) of the government’s new scheme oriented to support the lira via protected time deposits. Constant government pressure on the CBRT vs. bank’s credibility/independence. Bouts of geopolitical concerns. Structural reforms. Upcoming Presidential/Parliamentary elections.

USD/TRY key levels

So far, the pair is gaining 1.33% at 16.3837 and faces the next up barrier at 16.4554 (2022 high May 26) seconded by 18.2582 (all-time high December 20) and then 19.00 (round level). On the flip side, a breach of 14.6836 (monthly low May 4) would expose 14.5458 (monthly low April 12) and finally 14.5136 (weekly low March 29).