Analysis | November 20, 2020

Forex market outlook: USD/TRY & USD/MXN

FX UPATED OUTLOOK FOR USD/TRY USD/MXN

20/11

Enclosed our view of USD/TRY and USD/MXN which we looked at in a previous post, we are flat and have adjusted our entries and targets…

“Turkey’s central bank ramped up its key interest rate by a whopping 475 basis points to 15 percent and pledged to remain tough on inflation on Thursday, meeting lofty expectations after President Recep Tayyip Erdogan installed a new governor and heralded a new economic approach.”( ALJAZEERA)

The Central Bank’s 4.75 percentage-point rate increase to 15 percent on Thursday has turned the lira into one of the highest yielding currencies in emerging markets. The central bank has also simplified monetary policy and it will lend from now on at the single 15 percent rate.

The Central bank also said interest rates would remain high for an extended period until inflation is reduced. Annual consumer price inflation in Turkey stands at 11.9 percent. The interest rate hike will hurt the economy which has already taken a big hit from COVID.

USD/TRY Holds Key 7.500 Level

The USD fell after the meeting but has now steadied above the key 7.50 level and after the heavy fall into and after the meeting we would expect some upside. Also, we are looking for risk on in the markets to end as per our previous blogs which will hit emerging market currencies and expect a broad-based USD rally.

USD/MXN Holding Above Key Support at 20.00 As Volatility Drops

Volatility is generally low in the FX markets and in the normally volatile USD/MXN we have seen little action over the last week as we trade in low volatility above the key 20.00 weekly support level. The low volatility points to a big move and we think it will be to the upside as the USD corrects its oversold condition and carry trades exit the market.

Technical Analysis

USD/TRY DAILY CHART: After falling after the Central Bank Interest rate announcement we have steadied above the 7.500 level. We would expect some USD upside from here to the 20 Day MA to correct oversold – we view the USD as a buy above nearby resistance for a move back to 8.00.

USD/MXN DAILY CHART: The 20.00 level is key weekly support, and we are trading above it in low volatility. The USD is at a bearish extreme and speculators are heavily short – we expect a move above nearby resistance to end the low volatility and trigger a short covering rally up to the 22.00 level.

 

 

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