Global macro overview for 16/05/2018

The global investors are increasingly worried about the state of the 17th economy in the world. On Wednesday morning the Turks had to pay nearly 4.50 lira for one dollar, which is more than 1% more than the day before. At the beginning of the year, the American currency was less than 3.80 lira. This means that in 2018, the lira lost over 15% of its value against the US dollar. The euro rate rose to 5.31 lira and also set a historical maximum.

At noon, the Central Bank of the Republic of Turkey (CBRT) issued a short statement with the following content: "The CBRT closely monitors the unhealthy price movements in the markets. Necessary actions will be taken, also in relation to the impact of these events on inflation prospects." The market could interpret this as a signal that CBTR is ready to make an emergency interest rate increase if it seems appropriate. As a result, the dollar exchange rate fell from 4.50 to approx. 4.42 lira within a dozen or so minutes.

The "depreciation spiral" in which the Turkish currency has fallen is largely the result of the terrible economic policy pursued on the Bosphorus. The Turkish central bank cannot (or does not want) tame the galloping, exceeding 10% per annum, price inflation. A rapidly growing imbalance in the current account, which already exceeds the equivalent of 6% of GDP, is now another problem for the Turkish economy. Under such conditions, a professional and independent central bank definitely raises interest rates to stop a dangerous credit boom. But the monetary authorities of Turkey cannot do it, because the president who exercises almost the Sultan's rule is a sworn enemy of high-interest rates. Recep Tayyip Erdogan has a somewhat bizarre view that high rates are driving inflation.

On Tuesday, Erdogan announced that after winning the elections scheduled for June 24 (in the fact that they will win, probably no one doubts), he will still expand its influence on economic policy, which may deprive the central bank of the remaining freedom in shaping interest rates at all.

Let's now take a look at the USD/TRY technical picture at the H1 time frame after the CBRT verbal intervention was made. The price fell sharply from the level of 4.5011 to the lows around the level of 4.4043 but did not break below the technical support at the level of 4.3732. This level is a short-term key for further depreciation of the US dollar. The next important technical support is seen at the level of 4.2189. Obviously, the market conditions are extremely overbought and there is a clear bearish divergence between the price and the momentum oscillator, which additionally support the bearish short-term outlook.

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