The surprising increase in the interest rate by the Turkish central bank will likely be enough to calm the pound, but we must not forget that the country’s elections are nearing – June 24th.
Today’s unexpected increase of 125 basis points at a one-week repo rate sent a message to investors that the central bank is independent and ready to counteract President Erdogan’s controversial policies. His comments were not delayed. The Turkish president said he would deal with currency speculators after the election. We must also remember his desire to take control of monetary policy, given that he won the election.
According to a large number of analysts, his victory is not certain, and in addition, soaring interest rates reassure investors, which has a positive effect on the pound. But we should not forget the complicated political position of Erdogan and his mania to rule.
Wherever we look at the situation, the prospects for TRY are extremely negative, whether Erdogan will win the election or not. Let’s look at the two options.
Erdogan’s victory will surely trigger Kurdish terrorist groups that have been seeking an independent state for years on the territory of present-day Turkey. I expect mass protests against Erdogan’s policy, not excluding many terrorist acts in major cities, where Erdogan receives almost complete support. In summary, uncertainty in the country will rise significantly, and this will negatively affect TRY in the medium term.
In the case of Erdogan lose, I expect again uncertainty in the country, which will be caused by mass protests organized by the current president’s supporters. On the other hand, it is no secret that Erdogan, like Putin in Russia and Xi in China, is a strong backbone of the local business. Loss of Erdogan will seriously worsen business climate in the country, and this will add extra weight to the Turkish economy, respectively TRY.
Let’s take a technical look at the situation – USD/TRY – D1
The pair is in an accelerating upward trend, with the latest news around the central bank calming the bulls. I expect in the days before the elections to drop the couple to the purchase area formed by horizontal support, internal diagonal and 50SMA. DeMarker is pointing downwards, coming out of an overpurchase zone and dropping below 4.4496 (short-term support) will lead to a deeper adjustment that I expect for a better positioning. Entry before the election in the country will require a deep SL, as the volatility will be deadly, and the likelihood of speculation will jump dramatically. One thing is certain, Stop Hunting-a will be in vogue.
Trader Petar Milanov