Global macro overview for 25/07/2018

The Central Bank of Turkey contrary to popular belief of market participants did not raise interest rates by 100 bp. The increase was fully discounted, so its lack was a huge shock. The justification was the slowdown in economic growth, the already high-interest rate (17.75%) and the conviction that fiscal policy will provide support for the economy may support the maintenance of the status quo. Unfortunately, the central bank's short-sightedness is unpredictable, what could be the consequences of sending false signals to the market or not reacting to burning economic problems (capital flight, depreciation of the lira and high inflation connected with it: 15.4%). Not to mention how passivity is fueled by speculation about the loss of independence by the central bank in the face of recent system changes and the introduction of the presidential system. The lira exchange rate broke down (-3 percent), and the fleeing capital had to look somewhere for parking somewhere. Nevertheless, I still think that the asymmetry of risks is more threatening to the lira than it creates an opportunity, especially that the theme of trade wars remains alive.

Let's now take a look at the USD/TRY technical picture at the H4 time frame. The market has been trying to rally towards the recent swing high at the level of 4.97, but the bulls failed to break through that level and manage only to make a local high at the level of 4.9380. Currently, the price is approaching the technical support at the level of 4.7777, but the uptrend still continues. The key support level is seen at 4.4458 and only a sustained breakout below this level would change the mid-term outlook from bullish to bearish.


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