USD/TRY forms a shooting star pattern ahead of CBRT decision

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The USD/TRY exchange rate was sitting near its all-time high ahead of the upcoming Central Bank of the Republic of Turkey (CBRT) interest rate decision. It also wavered as traders waited for the upcoming US personal consumption expenditure (PCE) data. 

CBRT decision and US PCE data

The USD/TRY exchange rate will be in the spotlight on Thursday as the CBRT delivers its June interest rate decision.

Most economists expect the bank to maintain the main interest rate at 50% as it has done in the past few meetings.

Still, the CBRT could surprise the market by delivering a small rate hike since inflation has held steady in the past few months. The most recent report showed that the headline Consumer Price Index (CPI) rose to 75.45% in May, beating the average estimate of 74.80%.

Turkey’s inflation has been going up after bottoming at 38% in May last year. Ironically, this rebound has happened at a time when the CBRT has maintained a highly hawkish tone. It has moved interest rates from 8% in May to 50% today.

As such, the Turkish lira has plunged because inflation has constantly remained above the CBRT’s interest rates. That has made it difficult for people to invest in Turkish bonds because of their negative real return. 

The currency has also crashed because most people don’t believe that Erdogan will allow interest rates will remain this high for a long time. In the past, he has made the case of lowering rates in a bid to fight inflation. 

The next important catalyst for the USD/TRY pair will come from the United States, which will publish the latest PCE report on Friday. This is an important report that looks at the changes of prices in urban and rural areas. 

Economists believe that the country’s inflation remained above 2% in May, a move that will push the Fed to maintain interest rates higher for longer. The Fed has hinted that it will deliver just one rate cut this year, which has pushed the US dollar index (DXY) to the highest level in months.

USD/TRY technical analysis

USDTRY chart by TradingView

The daily chart shows that the USD to TRY exchange rate has remained in a tight range since March this year. In this period, it has remained slightly above the important resistance point at 30.

The pair has remained above the 50-day moving average and the key resistance point at 32.80, its highest swing on April 19th. It has also formed a small shooting star chart pattern, which is characterised by a small body and a long upper shadow.

Therefore, the USD/TRY pair will likely remain in this range after the CBRT decision. Because of the shooting star pattern, it could drop and retest the support level at 32.50.

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