EUR/TRY: Euro Seen Stronger Versus Turkish Lira
EUR/TRY is on the rise as concerns over Turkey’s runaway inflation sent the lira tumbling to the lowest-ever level against the US dollar. Despite the problems facing the Eurozone, the Euro has appreciated almost 30% against the Turkish lira this year.
The Euro’s strength comes after Turkey’s central bank unexpectedly cut rates last month. Whilst almost all Central Banks are tightening monetary policy to fight inflation, the Central Bank of the Republic of Turkey (CBRT) is taking a different approach. Rather than fight inflation, the CBRT is focusing on economic growth. By keeping rates low, the bank hopes to stimulate exports and tourism.
But low rates come with a high price.
This week, the Consumer Price Index (CPI) data revealed Turkish inflation has topped 80% for the first time 24 years. Furthermore, the annual rate of inflation has increased for 15 consecutive months. At the present levels, Turkey has the sixth-highest rate of inflation (bordering hyperinflation). Nonetheless, the CBRT shows no signs of tightening. As a result, traders expect the Turkish Lira to weaken further.
Though the CBRT is reluctant to raise rates, it has implemented measures to combat inflation, including limiting banks from extending new local currency loans. However, if the measures will be effective, remains to be seen.
Turkish Lira Forecast
the daily chart shows EUR/TRY is grinding higher in a narrowing triangle formation. Typically, technical traders view this tightening pattern as a precursor to a breakout. Notably, the 50-Day Moving Average (DMA) at 18.02 reinforces the lower edge of the pattern. For that reason, an upside breakout looks the likeliest outcome.
Considering the confluent support below the market, the rate should soon test the resistance offered by the top edge of the pattern at 18.68. Succesful clearance of this level, clears a path to the all-time high of 20.60 set in December 2021.
The bullish view relies on USD/TRY staying above the 50-DMA. Subsequently, a close below 18.02 flips the outlook from bullish to bearish.
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EUR/TRY Exchange Rate Chart
