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EM Rundown: Just TRY and Stop This Rally in USDTRY

As the sun rises on a new trading week, the US dollar is edging lower against most of its major rivals, despite rising concerns about Greece’s debt negotiations and a measure of optimism heading into Thursday’s FOMC meeting. Interestingly, the dollar’s weakness against the G10 currencies has not uniformly spilled over into the EM FX realm, where the greenback is actually rallying against the Turkish lira and the South African rand.

USDTRY: Just TRY and Stop This Rally

In last week’s EM Rundown report, we highlighted the ruling AKP party’s disappointing results in the general election, concluding that “[i]n the long run, the vote in favor of limited power should benefit Turkey’s economy and currency, but the immediate prospect of political uncertainty has caused traders to sell the lira first and ask questions later.” A week on, not much has changed, with the AKP still trying to cobble together a coalition government to avoid a snap election.

Last week, USDTRY dipped down to fill most of the post-election gap, but the pair looks like it may be resuming its rally today. Rates are now back above key resistance at the previous all-time high (2.73) and bulls may look to target last week’s peak above 2.80 or the 161.8% Fibonacci extension near 2.8560 as long as the current political malaise remains unresolved. With no economic data of note due until next week’s CBRT meeting, Turkish politics and the performance of the US dollar as a whole will drive USDTRY this week.



USDZAR: Big Wednesday Data Twofer in the Rainbow Nation

Meanwhile in South Africa, there’s the same relatively stable political situation as always, but a key economic data twofer will still drive trade this week. First, the country’s statistics office will publish May CPI data at 8:00 GMT on Wednesday, with expectations centering on a 4.5% y/y growth rate (5.6% for core CPI). Though the recent weakness in the rand is a concern for some economists, the SARB has implied that it would like to see inflation edge up toward the central bank’s upper limit of 6% annualized before hiking interest rates, perhaps in Q4 of this year or early next year. The other major data release is the always-volatile retail sales report for April, which is expected to fall by -0.3% m/m after March’s -0.5% decline.

Much like USDTRY, USDZAR pulled back early last week before finding support and turning back higher today. Bulls stepped in to defend key previous-resistance-turned-support at 12.30 on USDZAR, so as long as that floor holds, the near-term bias will remain to the topside. Meanwhile, the MACD is still holding above its signal line and the “0” level, and last week’s dip has taken the RSI out of overbought territory, potentially clearing the way for another leg higher from here.



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