Key technical levels for the Turkish lira
The US Dollar Index has broken higher, unexpectedly if I am honest. The sideways trading period of June and July proved to be consolidation despite some negative candles on the weekly chart.
The 100- and 200-week moving averages acted as resistance but, now we have broken higher, they act as a springboard for the next leg higher. I see no reason why the index cannot now target 97.85/90.
The US dollar has seen the biggest gains against the Turkish lira this week, rallying from 4.83 to 7.21. This is headline-grabbing news, with a drop-off of 49% just this month for the Turkish currency!
However, the monthly chart below shows how the lira has been in steady decline for at least two decades.
We can see how the losses began to accelerate a decade ago and the lira really started a steeper descent from the beginning of 2015. This suggests trouble has been brewing for the economy for many years.
USD/TRY chart analysis
The daily chart for USD/TRY below shows how the purple 55-day moving average has worked perfectly as a support level in recent years and acted as a springboard in recent months, just before the panic ensued.
To get a handle on potential moves for USD/TRY in the days and weeks ahead we have to zoom into intraday charts.
Obviously the longer-term trend is negative for the lira so we can only expect that the downside will be limited. This is even if you believe the lira wildly over-shot on the downside this week. Trendlines are irrelevant after such a move because they will never project anywhere near the current price action.
So we are left with Fibonacci levels which do appear to be having some significance in the short term, as you can see in the four-hour chart above. We now have first resistance at 6.55/59 and, above 6.64, we are likely to target resistance at 6.80/84. A move above 6.93 takes us to 7.03/7.06, before the high at 7.21.
Failure to beat first resistance at 6.55/59 targets first support at 6.38/37. A move below tests the low for the correction at 6.28, hit yesterday (14 August). At the time this was also the 100-hour moving average, although it no longer is and so has much less significance today.
Further losses target better support at 6.1915. Bearing in mind how confident the dollar bulls are, it would not be a surprise to see substantial buying here. However, if we continue lower look for an excellent buying opportunity at 5.90/5.80.
Technical Analyst & Trader
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