Stability is very fragile

Given domestic and regional political tensions as well as worsening economic fundamentals, we think this stability is very fragile. Turkey continues to face downgrade risks to its actual BB/Ba1/BBB- ratings. The investment-grade rating from Fitch seems way out of line now, and its negative outlook suggests an adjustment will eventually be made. Key support for USD/TRY around 3.57 has held so far. A break below would set up a test of the December low near 3.34. If the lira starts to weaken as we expect, near-term target for USD/TRY come in near 3.7335.

(February 28)