EUR/TRY: Scope for a pullback - Rabobank

According to Piotr Matys, EM FX Strategist at Rabobank, diminishing political uncertainty and tighter monetary policy provided the lira with a much needed respite.

Key Quotes

“Given that a broadly firmer USD may limit scope for a pullback in USD/TRY, we prefer to express the improvement in the short-term outlook for the lira against the euro.”

“Combining positive domestic developments with technical analysis, we see scope for a corrective pullback in EUR/TRY - from the all-time high set earlier in April - to extend in the coming weeks.”

“By measuring the distance between the all-time high at 5.1940 and the trendline support we obtained 4.73 as a potential target. That said, we would initially aim for 4.85 given that this level may provide solid support that would have to be cleared before lower levels come into focus.”

“At the same time the lira may struggle to make a significant recovery against the US dollar. We have witnessed a major shift in sentiment towards the USD over the past few weeks as reflected in the DXY Index breaking above the crucial multi-month trendline resistance. The DXY Index is on track to end this week above the 91 pivot, which would confirm that the bulls have finally regained the initiative. The January high at 92.64 would be the next level to watch on the upside ahead of the December top at 94.219. The prospect of a firmer USD over the short-term horizon may prevent USD/TRY from falling in tandem with EUR/TRY.”