TRY: COVID-19 or Monetary policy

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Turkish Lira in Daily Chart

By: Ahura Chalki

There is no doubt that COVID-19 had external damage on many economies all around the globe, however, there are some countries that can suffer more, because the latest crises caused by pandemic, was like a bullet to their half-dead body, Turkey is one of them.

After the 2018 crises which sent the TRY to 7.15 from 3.80 against the USD, never could recover itself under 5.15. There are many reasons for that.

First of all, geopolitical tensions in the Middle East and Turkey’s efforts to be in the center of changes, always put the country’s economy in the risk, because between the big player in the Middle East, they have not much power and even not that much welcomed, which cause the successive failures for them, like Sury, Iraq, Egypt and latest one in the Lybia. And we have to add their gradual departure from the United States front, and their proximity to Russia, which again caused some sanctions from the US.

The wrong central bank’s monetary policies also were another issue over there. Of course, we should not forget that the central bank in this country is not literally independent. Reduce interest rates without aligning with inflation was the beginning of the problem. Also “Banks with a ‘real’ loan growth (including inflation) of between 5 and 15 percent enjoy a 2 percent reserve ratio on most lira deposits, which authorities adjusted from an earlier band of 10-20 percent that did not consider double-digit inflation.” (www.aa.com.tr)

And finally, the last blow. Turkish economy mostly based on Tourism, Textile, and export of agricultural products and all of them have been hit hard by the pandemic and it has prevented the dollar from entering the country, while it has made it difficult for the government to recoup its dollar commitments, even though when the US Federal Reserve and the IMF have both launched schemes to lend dollars to countries in need as part of their efforts to help combat the economic impact of the coronavirus pandemic, and Turkey was one of them.

Technical overview – daily chart

USDTRY has entered a neutral phase, limited by 50-DMA at 6.87 above and key support of 6.72. Immediate Support sits on 6.788. Price moves above 20 DMA, Candlestick is positive and raising slowly, while the OBV line is flat and RSI at 55, both signaling of relative support of more bulls. Breathing above 50 DMA at 6.87 will bring its all-time high of 7.26 in the spotlight. On the flip side, 100 DMA at 6.62 is the key support, and breaching under this level, can change the trend.


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