Overview

The Central Bank of the Republic of Turkey is meeting to decide on its interest rates on October 24. The CBRT’s Monetary Policy Committee (MPC) has, in its last two meetings, slashed the rates by 750 basis points in total after its former president, Murat Çetinkaya was dismissed by the country’s President Tayyip Erdogan. Encouraged by the moderate recovery in the economy, the bank will highly likely go for another cut again.

Turkish Statistical Institute (Tuik) in its latest report announced that, in September 2019, the CPI increased by 0.99%. This figure was 8.42% higher compared to December of the previous year. It was though a decrease of 9.26% compared to the same month of the previous year, the first below two-digits in years.

The country’s unemployment rate in July increased by 3.1 points compared to the same month in 2018 and hitting 13.9 percent. The number of unemployed people increased by 1 million 65 thousand people to 4 million 596 thousand people.

Another crucial factor in the Turkish assets’ pricing is the high tensions between Turkey and the United States. The harsh and unrelenting criticism from the US Congress to President Donald Trump’s decision to withdraw troops from Syria that precipitated a Turkish incursion may end up as devastating sanctions against Ankara. Both the House of Representatives and the Senate leaders have not ruled out the sanctions that target the Erdogan government, the Turkish military, financial networks and the energy sector.

Defense ministers of 29 NATO members are convening at the military organization’s headquarters in the Belgian capital of Brussels on Thursday to discuss Turkey’s operation in Syria. US Secretary of State Mike Pompeo and Defense Minister Mark Esper in earlier statements said they would discuss collective steps that can be taken against Turkey.

A critical meeting will take place on October 22nd between Erdogan and Russian Federation’s President Vladimir Putin. The two leaders will evaluate the military and political process in Syria after the US has left the field. Putin is trying to bring Damascus and Ankara together.

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.

Turkey’s central bank, the CBRT, has stated it would go for adjustments in the light of the recent improvements in inflation. Last week, the year-end inflation expectation was announced at 12.69 percent as the last monthly inflation rate stood 9.26 percent. While the likelihood of a cut in interest rates has risen, the strained US-Turkey relations due to the latter’s operation in Syria may lead to a pause this month. As the technical sell pressure continues in USDTRY, we will be monitoring the levels 5.7040 and 5.6750 for support. If the withdrawal reaches the bottom of this region, the 5.6340 level will be followed. In an upward movement, 5.8270 level will be the first resistance zone, and if the rise exceeds this zone, we will watch the 5.8780 and 5.9400 levels.

During the week, we will be following the European Central Bank’s interest rate decision. The focus will be on the details of the deposit interest rate cut and the net asset purchases program that will start as of November. Although the momentum of the current uptrend in the pair has slowed down due to Turkey’s Syria operation, we will be monitoring 6.5150 and 6.5520 levels in the continuation of the uptrend. If the increase in the pair exceeds this region, we will be following the 6.6070. In the case of possible withdrawals, the 6.4160 and 6.3830 regions will remain as supports and we will continue to follow the 6.3570 level if the sell pressure accelerates.

In the UK, Brexit uncertainty continues. With Prime Minister Boris Johnson’s letter asking the EU for another extension, any postponement mean even more uncertainty. In the light of the interest rate decision expected in Turkey as well as the Brexit developments in Britain, we will be watching the 7.5460 and 7.6000 levels for the current upwards move. If the rise exceeds this region, we will be following the 7.6650 region. In the event of a possible withdrawal, the 7.4180 and 7.3670 regions will continue to support, as we will be monitoring the 7.3470 level if the sell pressure reaches this region.

While pricing in Turkish assets appears to be seeking direction, in terms of gold, a medium-term upward trend is maintained. Despite the limited decline in gold prices globally, the negative atmosphere in the Turkish Lira due to Syria operation has not been observed in gram gold. While the ceasefire continues, the optimism in the Turkish lira is increasing. In order to maintain short-term sell pressure on the commodity, the levels 276.10 and 273.70 will continue to be support lines. If the withdrawal reaches the bottom of this region, we will be following the 270.80 level. While 279.60 and 281.50 levels remain critical in terms of resistance, we will be watching 285.60, if the upward movement exceeds this region.

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