The Turkish lira came in the spotlight again on Monday as Turkish markets reopened following last week’s holidays. The lira came under renewed selling interest, which suggests that market participants remain concerned over the US-Turkey standoff, as well as over President Erdogan’s influence on monetary policy. As for our view, it remains the same as before the Turkish markets closed. In order for the lira to recover and sustain its gains, a clear resolution of the detained American pastor’s case, as well as a massive rate hike by the Turkish central bank are needed, we believe.
From a technical standpoint, USD/TRY rallied and broke the upper bound of a possible pennant formation, to hit resistance fractionally below the 6.3000 barrier. In our view, the near-term outlook of the pair remains positive, but we see the case for a corrective retreat before the bulls decide to shoot again, perhaps to test the upper bound of the pennant as a support this time.
Shifting attention to our short-term oscillators, we see that the RSI rebounded back above its 50 line, but hit resistance near 70 and turned down. The MACD, after staying near both its zero and trigger lines for the whole previous week, rose slightly within its positive zone. Although both indicators detect positive momentum, the fact that the RSI turned down after hitting 70 supports our view that a small retreat may be on the cards.
If the bulls manage to take charge from near the upper bound of the pennant, then we would expect them to aim for another test near the key resistance hurdle of 6.3000. If they manage to overcome that obstacle this time, then we may see them setting the stage for our next resistance zone of 6.5500, defined by the peak of the 15th of August.
On the downside, we would like to see a clear dip below 5.9500 in order to start examining the case of a decent recovery in the lira. Such a dip could initially aim for the 5.7000 territory, marked by the low of the 16th of August, the break of which may open the way for the upside support line drawn from the low of the 24th of July, or the 5.4300 area, defined by the inside swing peak of the 6th of August.
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