The Turkish lira strengthened by as much as 15% after President Erdogan announced a plan to guarantee local deposits against market volatility. Accordingly, the government will pay the difference between the value of savings in lira and equivalent dollar deposits. The market has been heavily short lira, and the jump in value is likely a short squeeze. Moreover, the weekly chart's overbought condition has now been normalised (blue rectangle). The overbought condition likely put a floor under the TRY. Paradoxically, the normalisation may act as a platform for further volatility. Moreover, the announcement of guaranteeing deposits raises a serious question of how the government will do this? If it results in the adhoc printing of money, given the raising of the minimum wage by 50% in 2022, coupled with the incorrect implementation of monetary policy to stem inflation, the already heightened risk of Turkish systemic risk will be even higher.
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Senior Market Specialist
Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.