USD/TRY is to jump in 2023?

For the last months, the Turkish lira has been traded near the all-time lows against USD. I think that demand for the lira would shift soon, and it would trigger a breakout of resistance of 18.7 with the first psychological price target of TRY 20 for 1 USD with consolidation near 25 in the second half of the year.
In terms of technical analysis, I do not see any compelling things on the USD/TRY chart.

Therefore, I decided to look at an exotic currency pair with TRY on one side. I have taken Hungarian forint or Comparing with or , we can say, it is a weak currency that has constantly lost its value for the last 20 years. However, against the weakest TRY, is a king. On the chart, I see an opportunity to breakout of support of HUF 18.4 for TRY until the end of the year. The first target could be 14 with the chance to drop to 10. Keeping in mind that HUF is a weak currency that is now in a temporary good shape against the world currencies, such a possible forint strengthening against the lira could happen only if the latter drop to the majors.

If is to be 14, and is near its essential middle-term resistance of 380. It means USDTRY would be around 27,14. If reaches 10, USDTRY would be 38. With a magical in Turkey, including , artificially , and raising interest rates in and Erdogan's elections in June (and budget spending increase), it doesn't seem impossible to me.

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After one month, we see a small TRY decrease against USD. The estimated breakout of the level of 18.4 for TRYHUF happened a few days ago.

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Another month is over. Lira continued its smooth decrease to USD and HUF. Nothing new on the technical side. On the macroeconomic side, annual inflation decreased to 43.6% in April, but monthly inflation in April was higher, 2.4 vs 2.3%. On 14 May Turkey holds general elections.

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Erdogan has won the elections. It means there are no limits for TRY to continue its depreciation against USD.

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The classic breakout of the psychological resistance level after the event (elections) happened, i.e., the first target (TRY 20 for USD) was reached last week. The rocket driven by Erdogan's modern monetary theory and autoritarism continues to achieve new milestones.

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The target of 25 TRY for 1 USD, what I expected to see near the second half of 2023, was reached today. Moreover 14 TRY for HUF was reached yesterday, and the level breakout happened today. Consolidation may start soon. But in general, even with new Turkish monetary authorities there is no dramatic change in the monetary policy.

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Last week USDTRY reached the resistance of 26. The chart hints that USD owners have been selling dollars. I estimate the sellers consist of exporters, banks, and the central bank.
TRYHUF, which I use as the cross-check in my analysis, touched 12.6.
I believe during the second half of the year, we would see one more noticeable lira devaluation move against the main currencies, i.e., USD, and minors like HUF.
For TRYHUF, it could be 11 during some short period of the second period.

From a macroeconomic point of view, I see the opportunity for some lira intermediate decrease of about an additional 10%. The country's inflation growth decreased noticeably from 85% to 39.6%. However, it is significantly higher than the Turkish central bank interest rate of 15%. I estimate the bank will increase the rate to 25% if Erdogan allows it. It is still the question of how independent the central bank is in its decisions.
The Turkish money supply grows between 55-60% YoY. Its growth partly supports economic activity and then finally fuels lira devaluation.
Despite the severe contraction in TRY and drop in natural gas and oil prices, most of which the country imports, it still runs a negative current account. It means economic agents still can spend their TRY buying imported goods. Although Turkey has a diversified manufacturing sector, the permanent lira decrease doesn't drive Turkish exports to offset imports.
Government expenditures continually outpace its incomes and only temporarily there is the opposite case.

All in all, I am more optimistic than I was 4 months ago. Previously I expected 38 TRY for USD currently I think 32 might be the highest price of USD during the possible future spike.

To stop lira devaluation and change my mind, money supply growth should not exceed 15% YoY during 4-6 months in a row.

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Another month is almost over. During this month the dollar added about 3% against lira. I see the accumulation for another lira drop has begun to take shape after July 18. The next stop is expected under 28.
My favourite benchmark TRU/HUF showed continuation of its drop coming closer to 12 on July 18. Later HUF showed some fatigue against major currencies and lira as well. Nothing changed for middle-term, I still believe the pair would reach 11 by the end of the year.

From an economic perspective, Turkey is still in bad inflationary shape. Annual inflation abbbreaviated a little bit in June, the figure printed at 38.2% vs. 39.6% in May. While monthly inflation diverted and increased to a 5-month high of 3.9%. The central bank increased its rate to 17.5% which is significantly below annual inflation. This fact proves that the central bank still is heavily dependent on Ergogan. In other words, it is not independent. Taking into account deflected monthly inflation caused by the dramatic lira drop in the last 3 months, I expect that high monthly inflation levels will persist in the next 4 months, cranking up annual inflation above 50%. That will only increase the exorbitant gap between annual inflation in Turkey and its monetary rate. It would ignite a new inflation spiral.

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Almost every day of August lira depreciated slowly against USD until this Thursday, when the Central Bank of Turkey unexpectedly raised its rate to 25%, exceeding the market consensus. It is the highest policy rate for the last 19 years in Turkey.

The policy decision helped wreck the dollar buyers' accumulation to make the next spurt to the level of 28. USDTRY would trade between its historical high of 27.22 and 25.5 next month. There is a chance that the bullish trend stopped.

From an economic perspective, July showed an increase in annual inflation, the print was at 47.8%

The monthly inflation reached a 16-month high of 9.49%

Driven by devalued lira, consumer prices will continue their growth this year, despite a possible stop in the lira depreciation.
The money supply M2 increased its growth rate to 68% YoY.

According to the June 2023 monetary development statistics prepared by the Central Bank, there is notable growth in the lira-denominated deposits. The volume of issued non-financial loans increased by 53.9% YoY, and household loans increased by 81.4% YoY. The latter is significantly higher than current annual inflation. It drives consumption and imports, resulting in depreciated lira. This credit boom is creating a macroeconomic opportunity for the lira to drop towards the end of this year.

Nikita_Kalinin

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