USD/TRY probes the 5.60 handle and rebounds

• USD/TRY dropped to fresh 3-month lows near 5.60.
• Turkey CPI came in below expectations at 15.72% YoY.
• US ADP, Non-manufacturing PMI next of relevance in the docket.

The Turkish Lira has given away part of its earlier gains to the 5.60 region vs. the greenback and is now pushing USD/TRY to the 5.6500 region.

USD/TRY weaker post-CPI

The pair clinched fresh multi-month lows in the 5.60 neighbourhood after inflation figures tracked by the CPI showed consumer prices rose 15.72% on a year to June, missing expectations. Prices also rose 0.03% inter-month.

Further data saw Producer Prices gaining 0.09% on a monthly basis and 25.04% from a year earlier.

In the meantime, the upbeat sentiment around the Lira remains unchanged after the US talked down (discarded?) the scenario of US sanctions against the country following the purchase of the Russian S-400 missile defence system.

What to look for around TRY

Recently, the CBRT left no doubts it will continue to support the current tight monetary conditions. However, the enduring disinflation process looks unabated in the wake of June’s inflation figures and this could open the door to a potential shift from the central bank to a looser stance, including the palpable chance of rate cuts despite this move on rates appears untimely in the near (and medium) term. On the positive view, TRY could gain some support along with the rest of the EM FX space in response to the recent shift of the Federal Reserve to a more dovish view on it monetary conditions and the US-China trade truce. Still, the country needs to implement the much-needed structural reforms (announced in April) to bring in more stability and start a serious recovery in both economic activity and credibility.

USD/TRY key levels

At the moment the pair is losing 0.18% at 5.6431 and faces the next down barrier at 5.6076 (monthly low Jul.3) seconded by 5.5878 (200-day SMA) and then 5.3918 (78.6% Fibo retracement of the 2019 rally). On the other hand, a surpass of 5.7025 (50% Fibo retracement of the 2019 rally) would expose 5.7792 (21-day SMA) and finally 5.9025 (55-day SMA).