USD/TRY Ignore USD Pullback Towards 17.30 As Turkish Credit Default Swaps Hit All-Time High

  • USD/TRY remains firmer for the third day in a row despite the DXY retreating from the 20-year high.
  • Türkiye 5-year credit default swaps return to a record high of 895 basis points.
  • Turkish industrial production has recovered but inflation woes, Fed-led chatter favors pair buyers.
  • US PPI, risk catalysts can offer immediate directions.

USD/TRY is hesitant to portray US Dollar weakness as it nears 5:30 p.m. ahead of Tuesday’s European session. In doing so, the Turkish Lira (TRY) pair vindicates TRY traders’ fears as the country’s Credit Default Swaps (CDS) hit an all-time high.

That said, Reuters reported 29 basis points (bps) of a jump in Turkish 5-year credit default swaps to a new high of 854 bps by the end of Monday, citing S&P Global. Credit default fears in Turkey ignore the fall in industrial production in April, to 10.8% against 7.95% expected and 9.8% previously.

The reason for the pessimism surrounding TRY may have to do with inflation nearing 70% and President Tayyip Erdogan’s rejection of rate hikes.

It should be noted that the liraalisation seems to offer intermediate breaks to the uptrend of USD/TRY. Recently, the Central Bank of the Republic of Turkey (CBRT) announced that companies using Turkish lira rediscount credits will be offered longer maturities and will be required to commit to selling at least 30% of their export earnings. to banks, according to Reuters.

Elsewhere, a jump in Fed rate hike expectations of 75 basis points joins China fears to keep USD/TRY buyers hopeful.

While Wednesday’s Federal Open Market Committee (FOMC) is the main catalyst for USD/TRY traders, the US Producer Price Index (PPI) for April, expected at 10.9% YoY vs. 11, 0% before, might entertain intraday traders.

Technical analysis

Short of breaking the resistance line turned January support near 16.50, quickly followed by 20-DMA support near 16.40, USD/TRY bears remain off the table.

Meanwhile, the upper line of the 5-week-old bullish channel around 17.45 is challenging USD/TRY upside ahead of the yearly high around 17.50.

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