Bullish break

Dünya Executive - - REPORT -

Piotr Matys, strategist, Rabobank

While USD/TRY has been trading sideways so far this year, the sell-off in Turkish stocks may provide sufficient upside traction to trigger a break higher that would set the dollar on the course to a new all-time high versus the lira. Turkish stocks have been benefiting from the Goldilocks scenario of a synchronis­ed recovery in the global economy led by emerging markets, persistent­ly low inflation and the Fed gradually withdrawin­g stimulus at a time when other major central banks continue to provide unpreceden­ted liquidity. Since the end of 2016, the Borsa Istanbul 100 Index produced a very impressive rally of 69.3 percent to a record high of 121,532 driven by rising demand among foreign investors. The fresh wave of capital inflows was a significan­t factor supporting our view held since the beginning of 2017. This scenario came to an abrupt end in September when a diplomatic spat between Turkey and the US triggered a sharp squeeze higher in USD/TRY, forcing us to abandon our cautiously optimistic scenario view on the lira against the US dollar. If capital outflows accelerate, it could prove sufficient for USD/TRY to gain enough traction to break higher from the year-todate sideways range.

(March 2)

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