Overview
Markets and investors watching the Turkish Lira and assets will be tuning to mostly rate-setting decisions by major central banks, including the Central Bank of the Republic of Turkey (CBRT).
The CBRT’s monetary policy meeting this Thursday is widely expected to go for yet another sharp interest rate cut. Signs of such an outcome have repeatedly come from the country’s highest level of political authority that now appears to be in full charge of the central bank’s policies.
President Recep Tayyip Erdogan who earlier stated that he was ‘allergic’ to interests made all clear over the weekend that the CBRT would lower interest rates.
“The Monetary Policy Board is meeting on Thursday, and I believe that interest rates will be lowered further. And you will see as interest rates decrease, inflation will fall,” Erdogan told supporters.
As such, it is almost certain that the bank, which is legal -and at least on paper, still independent in decision-making will be cutting interest rates by some at least 200 to 300 basis points.
On the same day, markets will be watching the European Central Bank ECB’s policy meeting. The recent signs of recession in the Eurozone’s giant powerhouse German economy, force the bank to further cut interest rates that are already in the negative territory.
The ECB President Mario Draghi, who is leaving the job at the end of the year, is also expected to announce, or signal, a new stimulus program -perhaps with a policy that could be interpreted as his rescuing of the euro again. During the meeting that will be the last chaired by Draghi, a 10bp rate cut and monetary stimulus options that are hoped to revive a slowing economy will be on the table.
The US Federal Reserve’s Federal Reserve Market Committee (FOMC) is holding its policy meeting on September 18. The Turkish lira and assets market investors will also be keeping an eye on the Fed decisions amid rising questions whether the bank will actually for a cut. The fact that the US economy remains strong despite some negative data, and that Fed Chairman Jay Powell emphasizes this at every opportunity, reinforces the arguments that there is no need for interest rate cuts.
But on the other hand, as President Donald Trump has pointed out the strong dollar that puts the American exporter at a disadvantage, and external factors such as the ongoing trade war with China are warranting calls for a rate cut by the Fed.
An important took place last week when the US Trade Wilbur Ross visited Turkey for a 5-day trip. Ross and his Turkish counterpart Ruhsar Pekcan discussed ways to increase to the countries’ trade volume by fivefold from $20 billion to $100 billion.
Much of the investors’ attention during the week will be on the CBRT interest rate decision on Thursday. Last week, the Lira saw an improvement after growth and inflation figure that were welcomed positive for the economy. However, the optimism in the exchange rate was limited after the increased likelihood of an interest rate cut by CBRT. Resistance levels at 5.8100 and 5.8700 continue to be critical in terms of the continuity of the current upward movement. For bull market conditions in the pair, we will be monitoring if the price can persist above 5.8500. In case the interest rate cut does not come or does not meet the expectations, 5.6550 level will be the first important support level when a selling pressure occurs. If the withdrawal reaches below this region, we will be monitoring the 5.6030 level.
With the interest rate decision on the horizon in Turkey this week, ECB’s policy meeting as well will be followed. While the markets expect an interest rate cut of 10 basis points from the ECB, announcements regarding an additional stimulus package will also be affecting mood. As we enter a critical monetary policy week, it is worth noting that volatility and uncertainty could be more valid in the pair compared to other Turkish lira instruments. In technical terms, we will be monitoring the levels at 6.3740 and 6.4425 in the event of a continuation of the current recovery trend. In the case of possible withdrawals, the 6.1600 level will be a critical support position, and if the selling pressure reaches below this region, the withdrawal may accelerate and reach 6.0000 again.
In the UK, the Brexit process continues to create political turmoil and heighten a no-deal situation. As the volatility in the pound increases day by day, the intensity of the Turkish lira-based pricing continues to have an impact. As the CBRT interest rate decision is expected to have an impact, a short-term recovery trend continues to be valid. In the case of a continuation of the current uptrend, while 7.1100 will be followed as the first critical resistance line. We will be following 7.1800 if the upward movement exceeds that zone. In the case of possible withdrawals, the 6.9100 regions will be the first support point, while 6.8600 will be decisive for the continuation of the withdrawal if a selling pressure reaches below this region.
In addition to the CBRT’s interest rate decision, the course of global gold prices will also be decisive for gold gram-Turkish lira pricing. The course of gold prices in global markets that is at the peak of the past 6–7 years in line with the US Fed’s interest rate policy and market risks are also reflected in the price. However, an interest rate cut expected by the CBRT during the week may accelerate the depreciation of the Turkish Lira for a while. As such, the current short-term withdrawal in the commodity may lose momentum. While 271.60 level maintains its importance as support in continuity to the current sell pressure, 260.20 level will be watched if the pressure accelerates. In the case of upward movements, 281.75 is the first significant resistance, while 293.00 might come within the targets if the rise exceeds the first resistance.
