USD/TRY tumbles to 2-month lows near 5.65

• USD/TRY drops to fresh multi-week lows near 5.65.
• USD-selling keeps supporting the EM space.
• US ADP, ISM Non-manufacturing due later in the day.

The Turkish Lira is extending the rally so far today and is now forcing USD/TRY to drop further and record new 2-month lows in the proximity of 5.65.

USD/TRY lower on USD-softness

The prospects of a potential shift in the Fed’s stance to a more dovish one, including probable rate cuts in the next months mainly in response to trade tensions and lack of upside traction in inflation continue to weigh on the buck, favouring in consequence the so-called riskier assets.

That said, the Lira continues to benefit from this renewed inflows into the EM universe, although the extension and duration of the move is highly debatable to say the least. At the moment, TRY has managed well to leave behind recent poor prints from inflation, producer prices and manufacturing PMI, all coming in below expectations.

Later in the session, the greenback is expected to remain in centre stage in light of the releases of the ADP report, the ISM Non-manufacturing, Markit’s final services PMI and the Fed’s Beige Book.

What to look for around TRY

The Turkish Lira remains firm so far this week, meandering the area of multi-week lows near 5.60. As usual, trade effervescence should remain as key driver in the EM FX space, while frictions between the AKP and its main opposition party in the run up to the municipal elections in Istanbul are also emerging as another source for Lira volatility albeit on the domestic front. Further out, potential US sanctions following the purchase of the Russian missile defence system keeps lingering over the country as well as sanctions over Iranian crude oil exports. Additionally, the independence and credibility of the CBRT should remain under the microscope against the omnipresent conflict between the government and the bank’s authorities. Recently, another focus of attention has emerged after the IMF urged the government to start implementing reforms aimed to bring back stability to the country’s fundamentals.

USD/TRY key levels

At the moment the pair is retreating 1.32% at 5.7016 and a breach of 5.6560 (low Jun.5) would open the door to 5.6482 (200-day SMA) and then 5.6080 (100-day SMA). On the other hand, initial hurdle lines up at 5.8397 (55-day SMA) followed by 5.9921 (21-day SMA) and then 6.1516 (high May 23).