2023.06.14 2023.06.14
Lira changes game rules. Forecast as of 14.06.2023Dmitri Demidenkohttps://www.litefinance.org/blog/authors/dmitri-demidenko/
When the system goes down, there is always turmoil. However, fighting inflation by lowering the rate for an infinitely long time is a policy doomed to failure. Turkey’s return to traditional monetary policy could support the USDTRY rally. Let’s talk about this topic and draw up a trading plan.
Fundamental Turkish lira forecast for six months
Buy and hold. In fact, to make money on Forex, it is not at all necessary to have a trading system that generates 75%-85% of successful transactions. It is enough to execute one transaction, which will bring a good win. Even Warren Buffett himself, whose investments brought tens of thousands of percent, noted that there were very few successful transactions in his career. Approximately, he had one profitable trade every five years. In our case, one of the winning trading decisions was the purchase of USDTRY a year ago, when the pair was quoted near 15. Now, it is trading above 23. And this is far from the limit.
Signs of Turkey’s transition from unorthodox to traditional monetary policy have triggered the most serious daily collapse of the lira against the US dollar since December 2021. New Finance Minister Mehmet Şimşek said that the country’s regulator intends to pursue a rational policy. The Financial Times insider claimed that state-owned banks stopped supporting the local currency, and the governor of one of them called the current situation a deliberate devaluation.
Why did Erdogan, who previously forced the central bank to cut interest rates from 19% in March 2021 to the current 8.5% to allegedly fight inflation, changed his mind? Perhaps he realized that the policy of stimulating growth at any cost is flawed? Perhaps, after winning the presidential election, he no longer needed this policy? Or perhaps he just needed money, and attracting foreign investment in an unorthodox environment is almost impossible.
The transition to traditional fiscal and monetary policy requires new pro-Western leaders of the Ministry of Finance and the Central Bank, who have already been appointed. Then there needed the relaxation of capital controls, which will allow the markets to determine the lira value. At the same time, Goldman Sachs believes that in order to bring the system in order, an increase in the key rate to 40% is required. The bank predicts the USDTRY growth to 28 in 2024.
Dynamics of Turkish lira
Source: Financial Times.
SEB notes that Turkey’s move away from unorthodox policy results from an understanding that the lira cannot be saved by depleting the country’s foreign exchange reserves. This year alone, the central bank has spent about $24 billion to maintain the exchange rate, which did not help. SEB expects the dollar to strengthen versus the Turkish lira to 27 by the end of 2023.
Although many rules need changing, the destination becomes clearer every day – the country is moving towards the fact that the lira value will be determined by market factors. Therefore, the Turkish currency might face a crisis. For a long time, nothing seemed to be happening, and then there was an explosive exponential movement. That is what is currently taking place in the USDTRY pair.
USDTRY trading plan for six months
The policy of fighting inflation by lowering rates is doomed to failure. I spoke about this back in June last year and have often repeated it, recommending selling the lira. In May, a 24-25 USDTRY target was announced. Now it seems too low. The pair can rise to 27. It is still relevant to buy.
Price chart of USDTRY in real time mode
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.
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