Wed, Mar 29, 2023 @ 07:02 GMT
HomeContributorsFundamental AnalysisTurkey's Constitutional Referendum: Too Close to Call?

Turkey’s Constitutional Referendum: Too Close to Call?

On Sunday, Turkish citizens will head to the polls to vote on constitutional changes that could greatly expand the executive powers of President Erdogan The referendum will ask the question of whether to turn Turkey from a parliamentary to a presidential republic. The government and the President argue that a "yes" vote would reduce political deadlocks, thereby accelerating the pace of future reforms. On the other hand, critics of these changes argue that too much power would be concentrated in the hands of one person, which could increase the risk for an authoritarian government in the future.

Opinion polls suggest that this race is too close to call. A "yes" outcome is seen by most polls as being more likely, but marginally so. Importantly, the majority of polls show a high percentage of undecided voters, so surprises are definitely possible.

With regards to the Turkish lira, we see the case for the currency to strengthen under a "yes" outcome, and to weaken if the Turkish public votes against these reforms. Ever since the failed military coup last year, Turkey has remained in a state of emergency, which is still ongoing. Media reports suggest that in a "yes" scenario, the government could lift this state of emergency, which in our view could prove positive for the lira in the short-term, as some political uncertainty dissipates. In this scenario, USD/TRY could break below the crossroad of the 3.6400 (S1) support and a medium-term upside support line taken from the 13th of December. Such a break could pave the way for further downside extensions, towards the 3.5550 (S3) territory.

On the other hand, a "no" vote could heighten political uncertainty even further. The state of emergency could stay in place, and there seems to be no clear plan about what happens next. Some reports suggest that the nation could even go into early elections as soon as this year. In such a case, USD/TRY may surge and break above the resistance zone of 3.7050 (R1). A decisive break above that territory could initially target the 3.7400 (R2) level.

Today’s highlights:

During the European day, markets will remain closed in G10 nations in celebration of the Good Friday holiday.

Even though US markets will stay closed too, we still get the nation’s CPI and retail sales data, all for March. With regards to the CPIs, the headline rate is forecast to have ticked down, while the core rate is expected to have ticked up. In such a case, we think that an increase in the core CPI rate is likely to overshadow a decline in the headline, as policymakers tend to focus more on the core figure.

As for retail sales, both the headline and the core rates are expected to have declined somewhat. We see the risks surrounding these forecasts as skewed to the upside, perhaps for unchanged rates, considering the nation’s consumer confidence indices for the month. Even though the U of M index rose only slightly, the Consumer Board figure skyrocketed, reaching a level last seen in 2000. This suggests that US consumers may be feeling increasingly more optimistic, something that may show up in the retail sales figures too. Considering our overall CPI and retail sales view, we think that the greenback could recover some of its recent losses on the news.

USD/JPY rebounded somewhat yesterday, after it found support near the 108.80 (S1) level. In case of encouraging US data today, this recovery could continue and perhaps aim for the 109.90 (R1) resistance area. However, bearing in mind the latest verbal FX intervention from the Trump administration, as well as the fact that geopolitical risks in the Korean Peninsula and the Middle East are far from diminished, we believe that any near-term rebounds in this pair are likely to remain limited. As such, even if the rate rises somewhat today on the aforementioned data, we would expect the bears to take back control soon and push the battle lower again, possibly for another test of the 108.80 (S1) support level.


Support: 3.6400 (S1), 3.5900 (S2), 3.5550 (S3)

Resistance: 3.7050 (R1), 3.7400 (R2), 3.7700 (R3)


Support: 108.80 (S1), 107.90 (S2), 107.00 (S3)

Resistance: 109.90 (R1), 111.00 (R2), 111.60 (R3)

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