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Economic Consequences of Earthquakes in Turkey Weigh on the Lira

3/3/2023 2:40 PM

The USD/TRY pair is actively adding in value and this week reached another annual highs around 18.9450, while the lira remains under pressure from the monetary policy of the Turkish authorities and the negative consequences of earthquakes.

February data on inflation in the country were published today, which turned out to be generally positive: the consumer price index on a monthly basis decreased from 6.65% to 3.15%, which is lower than the expected 3.35%, and on an annual basis it decreased from 57.68% to 55.18% instead of the projected 55.50%. Price growth has been slowing down for the fourth month in a row, after they peaked at 85.51% in October, but these data did not provide serious support to the currency, as experts fear that the indicators will soon return to upward dynamics. The reason for this may be government measures aimed at supporting the economy affected by the consequences of a series of earthquakes in early February. In general, the economic damage estimated by experts in the range from 30.0B dollars to 100.0B dollars may cost the Turkish economy 1.0-2.0% of gross domestic product (GDP) this year. To offset these consequences, the Central Bank of Turkey again lowered the interest rate from 9.0% to 8.5%, and President Recep Erdogan promised serious financial incentives to the affected areas. All this may push prices to a new growth, and the pressure on the lira will increase.

Under these conditions, the US currency looks more attractive, as the US Fed is preparing to continue tightening monetary policy. January data on the price index of personal consumption expenditures, which recorded an annualized increase from 5.3% to 5.4%, convinced experts that the regulator at the next meeting could again raise the interest rate by 50.0 basis percentage points to 6.0%. Currently, the market is waiting for the release of February employment data in the USA and the speech of the head of the US Fed Jerome Powell in Congress. Probably, the specific steps of the department will depend on these events, but the long-term strengthening of the dollar against alternative assets will still continue. 

Technically, the price has consolidated above the level of 18.8477 (Murray level [5/8], the middle line of the Bollinger Bands) and may continue to rise to the levels of 18.9453 (Murray level [6/8]) and 19.0430 (Murray level [7/8]). The key for the "bears" is the level of 18.7500 (Murray level [4/8]), a breakdown of which will give the prospect of resuming movement to the levels of 18.6523 (Murray level [3/8]) and 18.5547 (Murray level [2/8]).

Technical indicators so far signal the continuation of the upward trend: the Bollinger Bands are directed upwards, the MACD histogram is stable in the positive zone, and the Stochastic is horizontal.

Resistance levels: 18.9453, 19.0430. | Support levels: 18.7500, 18.6523, 18.5547.

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