USD/TRY bounces off the 5.72 area, close to the 100-day SMA

• USD/TRY rebounds from lows in the 5.72 region.
• Turkey Economic Confidence index improved to 89.80.
• Attention remains on potential US sanctions against Ankara.

The Turkish Lira remains on the defensive vs. the Greenback today, lifting USD/TRY to the area of weekly tops near the 5.77 region. This area is also coincident with the key 10-day SMA.

USD/TRY looks to FOMC, sanctions

The pair is extending the up move this week although it remains in the red territory for the third week in a row, coming under renewed downside pressure after hitting tops in the 5.95 region in mid-October.

Collaborating with the selling bias, the Lira remains vigilant on the increasing anti-Turkish mood in the US Congress, where lawmakers appear eager to impose sanctions against Ankara in response to the military advance into northern Syria under the Operation ‘Peace Spring’ earlier in the month.

In the domestic docket, the Economic Confidence Index in Turkey bettered to 89.8 for the month of October (from September’s 86.0), mainly on the back of improvements in confidence index from the consumer sector, manufacturing, services, retail trade and construction.

Later in the week, the CBRT Inflation Report and minutes from the latest meeting as well as Trade Balance figures are due tomorrow ahead of the manufacturing PMI, due on Friday.

Later today, spot should be under the microscope along with the rest of the EM FX space in light of the FOMC event.

What to look for around TRY

The outlook on the Turkish Lira remains under scrutiny since the military incursion into Syria and the prospects of US sanctions against the country. That said, price action around the Lira should gyrate around geopolitics and the domestic front, particularly on monetary policy and following the persistent reduction of interest rates by the CBRT, as this is expected to meet increasing scepticism from investors regarding the sustainability of such a policy amidst a fragile economic outlook and the so far absence of the much-needed structural reforms to back President Erdogan’s promise of 5% GDP growth in the next years.

USD/TRY key levels

At the moment the pair is gaining 0.21% at 5.7472 and a breakout of 5.7976 (21-day SMA) would expose 5.8476 (50% Fibo of the May-August drop) and then 6.0027 (monthly high Aug.26). On the downside, immediate contention emerges at 5.7162 (low Oct.24) followed by 5.6730 (200-day SMA) and finally 5.6367 (monthly low Sep.30).