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Technical Analysis – Dollar makes new all-time highs versus Turkish Lira

The US dollar has been rallying against the Turkish lira, as the lira is an example of an emerging market currency that could be hit by interest rate hikes by the Federal Reserve.

The dollar has recently been making all-time highs against the lira, with the latest record being around 2.80.  The dollar has been climbing against the lira since October of 2008, when the pair was trading at 1.20.

More recently, the indications for the dollar are bullish since price action is above the Ichimoku cloud and the Tenkan-sen line has crossed above the Kijun-Sen line.  Price action might have gotten a little ahead of itself and it might be better for longs to be established on a test of the cloud support around 2.70.

A feature that should be noted is that the cloud is rather thin and price could fall through it if there is a substantial correction.  Another point of caution is that with Turkish interest rates around 7.5%, the lira enjoys a hefty interest rate advantage over the dollar’s zero interest rate, which could eat into any gains from longer-term positions.

To sum up the picture is bullish, although the rally is possibly overextended in the short-run.

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