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Global macro overview for 26/03/2018

According to analysts, the sale of Turkish Lira is a derivative of concerns about the stability of the Turkish economy, in which significant macroeconomic imbalances have emerged in recent years. It is true that the economy is growing at an impressive pace, in the third quarter of 2017 the annual GDP dynamics shot up to 11.1%, but inflation has broken out from central bank control - in February, the increase in consumer prices remained above 10% per annum. And the so-called core inflation - an increase in prices excluding food, fuels, and energy - accelerated to 12% on yearly basis.

Economists and foreign investors are, however, worried above all by the increasing current account deficit. After the data for January, the cumulated deficit for the previous 12 months increased to USD 50.6 billion. towards $ 47.2 billion. in December and 33.6 billion dollars. recorded in January 2017. The increase in the current account deficit by more than half in the developing country is a serious warning about the instability of the economy. The more so that the current account balance to GDP ratio is approaching the alarming level of 5%.

The rapid depreciation of the Lira creates the risk of a "depreciation spiral" similar to that of 2011. The weakening of the domestic currency drives inflation, which, in the absence of central bank reaction, drives further currency depreciation. In the case of Turkey, this risk is all the more serious because the central bank is not known for its independence from the Turkey president Recep Erdogan.

Let's now take a look at the USD/TRY technical picture in the daily timeframe. The market has made another higher high at the level of 4.0346 on Friday, so the old technical resistance at the level of 3.9821 will now act as a support for the price. The upward momentum is strong, but the market conditions are starting to be overbought. Moreover, according to the Fibonacci ratios, the next target for the price is seen at the level of 4.0850.

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The material has been provided by InstaForex Company - www.instaforex.com