Turkish Lira Weakens

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Traders who pay attention to more “exotic” currencies such as the Turkish Lira will remember the summer of 2018, when the currency weakened dramatically and sometimes fell by as much as approximately 15% in a single day! It was risky to trade, and very volatile, but shorting the Turkish Lira was a big winner for some between March and August, with the TRY depreciating by almost half against the U.S. Dollar over that time.

The depreciation was driven by a fundamental factor of a political problem with the central bank, which was perceived as afraid to raise its interest rate by enough to stop the bleeding. The crisis finally burned itself out, and between August and November the currency regained about 25% of its value.

Last Friday gave a sign that something may again be up with the Lira, with the price closing at its highest price since October last year, rising from open to close by an unusually volatile rise of 5.43%. In fact, it was the strongest move seen in the USD/TRY currency pair since last August.

There was no obvious driver for the day’s strong move. Some analysts have speculated that the Turkish central bank is beginning to come under pressure to lower its rate of interest as the government may seek a fiscal boost to flagging economic growth. Others say it was simply an expression of a general turn in global sentiment against market risk.

Traders looking to short the Turkish Lira by going long USD/TRY might do well to show some caution – Friday’s daily candlestick shows a significant upper wick which rejected an obvious area which has recently acted as both resistance and support, centered on 5.8128 as shown in the price chart below. A close above this level one day next week, though, could be a key confirmation that a serious bullish movement is happening – but trading the Turkish Lira is always risky and volatile, as any strong depreciation will always end with a bang eventually.

Lira

Adam is a Forex trader who has worked within financial markets for over 12 years, including 6 years with Merrill Lynch. He is certified in Fund Management and Investment Management by the U.K. Chartered Institute for Securities & Investment.