Turkish President Tayyip Erdogan announced that Turkey is ready to cut its interest rate. This is possibly in answer to the US, who threatens to impose sanctions on Turkey for buying Russian-made missile defense system S-400. Reuters says that according to their economists’ opinion, the central bank’s new governor Murat Uysal is going to cut the interest rate at the meeting on July 25th.
The economy situation in Turkey is complicated. The inflation had risen above 20% and remained above this level till March 2019. The last release for June from Turkstat demonstrated that the CPI plummeted down to almost 16% and it will definitely leave room for monetary policy easing.
Picture 1. Turkish CPI.
The economic improvement is confirmed by industrial production. Though it is still in the negative, (since September 2018) it is starting to get better.
Picture 2. Turkish industrial production
Now let’s look at USD/TRY from the technical point of view. If Turkey cuts the interest rate it will support dollar bulls. What levels could be reached in this case?
Despite the local bearish trend, the global tendency is still bullish. On July 1st, the pair broke the trend line down and started falling but the 200-EMA is still heading up. On 1D TF, the USD almost reached its moving average and after that, it started bouncing back. Right now, the pair is testing the trend line (resistance line) and we are considering two possible scenarios:
USD/TRY bounces back and starts moving down. The target is 5,56000. It is better to open shorts if the pair breaks its short 9-EMA (5,69500 approximately) down
USD/TRY breaks its resistance line up. In this case the target for the price 5,85600. Longs are possible only if the US dollar intersects 5,73000 up.
We think that the second scenario is more reliable now.
Picture USD/TRY. 1D TF.