The Coronavirus is raging throughout the United States. The US is now consistently reporting over 150,000 new daily cases. Lockdowns and restrictions are looming. There is also a new US President-elect who wants to raise taxes on the wealthy. Yet stock indices are closing at or near all-time highs! What kind of backwards year is 2020? With the increasing number of positive COVID cases and a new US President, comes the hopes of more fiscal and monetary stimulus. More stimulus means more US Dollars into the system, pushing the value lower. There will be an abundance of Fed speakers this week to who will try and guide the market as to if and when more monetary stimulus will be coming.
Last week we discussed the recent changes at the top of The Central Bank of the Republic of Turkey (Cbrt) and how it was effecting USD/TRY and EUR/TRY. Prime Minister Erdogan’s son-in-law, Berat Albayrk, resigned as Finance Minister. With the value of the Turkish Lira down roughly 25% on the year and inflation increasing more rapidly than expected, the Cbrt surprised the markets and hiked the key interest rate 200bps from 8.25% to 10.25%. That wasn’t enough as the currency continued to weaken. As a result, Erdogan decided that enough is enough. Last week he said that Turkey is prepared to make sacrifices and “swallow a bitter pill” in order to make changes. This Thursday, the Cbrt meets again. Expectations are that the Central Bank will hike an additional 475bps to bring its one-week repo rate to 15.00%!
Last Monday when the USD/TRY reopened after the resignation over the weekend, the pair gapped lower and moved from an all-time high on Friday at 8.5781 down to a low on this past Friday to 7.6000, a move of 11.37% in one week! USD/TRY closed last week just below the 50% retracement level from the lows of July 27th to the highs from November 6th. The RSI also moved from extremely overbought conditions above 80 to the lower end of the neutral area, near 35. The next level of support sits just below at the 61.8% Fibonacci retracement level near 7.5000.
Source: Tradingview, FOREX.com
On a 240-minute timeframe, USD/TRY has already completed its AB=CD pattern off the highs of November 2nd and continued lower, forming a descending wedge. Today, the pair broke higher out of the wedge and is currently testing short-term resistance near 7.7630. The target for the breakout of an ascending wedge is a complete 100% retracement of the wedge, which is 7.8920. If the market continues to feel it got to ahead of itself going into the Cbrt meeting, watch for profit taking at the 38.2% Fibonacci retracement level from the November 2nd highs to Fridays lows near 7.97/8.00. Resistance above that is the 50% retracement level near 8.066 and the 61.8% Fibonacci retracement level near 8.202.
Source: Tradingview, FOREX.com
USD/TRY should offer many trading opportunities this week. Watch for continued profit taking heading into the Cbrt meeting on Thursday. Make sure to use tight stops and have ample margin in place.