Turkish Central Bank has met. Do they raise rates? Raises rates by 300 bps
* I was writing a post when the CB raised.
The Turkish Central Bank has just announced that they "have met" in order to "evaluate developments in the recent period". The question now is do they raise rates to stem to fall in the TRY. The headline has already done its job and the USDTRY has moved sharply lower. And not we are getting word of a hike by 300 bps to 16.5% from 13.5%.
The TRY has been weakening on the back of concerns about election (will be held on June 24), and concerns about the US continuing to raise rates. The FT reported today that 20% of GDP is held in short term external debt with most in foreign currency. As US rates go higher, they will have to pay higher rates on that debt. That is painful. Fitch has warned that they may lower the rating on their debt which would pours gas on the fire.
Technically, the USDTRY moved above topside trend lines today on the weekly chart at 4.6522 and 4.8304 (see chart above). That accelerated the trend move higher.
However, the headlines has sent to pair back lower and the rate rise has now sent the price even lower. The price has broken the lower trend line to a 4.06024, but we are already seeing a rebound back to the lower trend line. Markets are volatile after the hike.
So is the high in place?
Maybe.
The central bank has "shot the bullet" and the price has come down as a result. Can the selling continue?
The fundamentals are still a concern that may or may not go away so easily. If investors don't like the currency (or investments in Turkey), the pressure can remain on the currency. The speculators are the ones that tend to be hurt more and that could help to stall the runs higher in the USDTRY.
Technically, watch the 4.6522 area (give or take the markets are volatile) on corrections. Stay below is more bearish (at least temporarily).
Looking at the hourly chart below, watch the 4.5865 area on the downside. That is the 100 hour MA (see chart below).
Below that level, the 50% of the move up from the May 10th swing low comes in at 4.5664. A break of that level will also be a level to eye on the downside that might ease some of the TRY selling pressure and swing the tide for the currency.
----------------------------------------------------------------------------------------------------
