USD/TRY retreats from tops around 5.6600

• The Lira remains on the defensive so far this week.
• Turkey inflation inched a tad higher during March.
• US-Turkey-Russia effervescence still weighs on TRY.

Another day, another drop in the Turkish currency. Following earlier tops in the 5.66 region, USD/TRY has sparked a correction lower and is now navigating the 5.62/61 area.

USD/TRY focused on geopolitics, data

TRY continues to regain ground lost after inflation figures in Turkey edged a bit higher during March. In fact, consumer prices rose at an annualized 19.71% (from 19.67%), just above forecasts. On a monthly basis, prices rose 1.03%, also surpassing estimates.

Extra data releases saw Producer Prices rising 1.58% inter-month and 29.64% from a year earlier.

In the meantime, the cautious tone is posed to prevail around the Turkish Lira in the very near term while market participants continues to digest the final results from Sunday’s municipal elections, where President Erdogan’s AKP lost the main cities: Ankara, Istanbul and Izmir.

Another front of potential TRY weakness has opened after Turkey announced its plans to buy a Russian missile defence system S-400 and the US response to halt deliveries of F-35 jets equipment to Ankara.

What to look for around TRY

The Lira is expected to remain under pressure in the near to medium terms, always tracking the performance of the risk-associated complex and specifically around the EM FX universe. Following the elections on Sunday, all the attention will now be on the implementation of (promised) structural reforms, conditio sine qua non for the start of a sustainable economic recovery and a return of the confidence in both the currency and the country. However, the geopolitical factor involving US and Israel and the issues around the country’s intention to buy a Russian missile defence system could open the door for US sanctions, putting the Lira under extra pressure.

USD/TRY key levels

At the moment the pair is gaining 0.82% at 5.6247 and faces the next hurdle at 5.7003 (high Apr.1) seconded by 5.8413 (2019 high Mar.22) and finally 5.8707 (high Oct.23 2018). On the downside, a break below 5.4865 (200-day SMA) would open the door to 5.3601 (55-day SMA) and then 5.2918 (low Mar.26).