USD/TRY forms a rising wedge ahead of CBRT decision

The USD/TRY pair went sideways after the relatively strong Turkish retail sales data. It is trading at 14.68, where it has been in the past few days. This price is about 20% below its all-time high and 43% above the year-to-date low.

Turkey retail sales rise

The Turkish economy has been under intense pressure in the past few months. Inflation has surged because of the relatively weak Turkish lira and the decision by the Central Bank of the Republic of Turkey (CBRT) to slash interest rates.

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Data published on Tuesday showed that Turkey’s retail sales did well in February even as inflation remained stubbornly high. Sales rose by 0.5% on a month-on-month basis after falling by 1.2% in the previous month. This growth translated to year-on-year growth of about 6.2%, which was slightly lower than the previous 8.1%.

The Turkish retail sales rose because of the government’s decision to lower some taxes in a bid to combat inflation. It has already slashed the value-added tax (VAT) on electricity and staple foods. The government also added some measures to lower the cost of living.

Still, inflation will remain at elevated levels in the coming months because Turkey is a net importer. It buys products like oil and gas from abroad. And these prices have remained at elevated levels for a while. This explains why the country’s current account deficit widened to more than $5.15 billion in February.

The next key catalyst for the USD/TRY pair will be the latest interest rate decision by the CBRT that is scheduled on Thursday.

After the several rate cuts in 2021 led to a significant jump in inflation, analysts expect that the CBRT will leave the interest rate unchanged in this meeting. Still, the bank’s tone will have an impact on the Turkish lira.

USD/TRY forecast

The USD/TRY pair has been in a slow bullish trend in the past few months. It has managed to move slightly above the 25-day and 50-day moving averages while the Average True Range (ATR) has moved to the lowest level since November 16th. This is a sign that the pair’s volatility has been declined.

The pair has formed a rising wedge pattern. Therefore, there is a likelihood that the pair will have a bearish breakout after the CBRT decision this week. If this happens, the next key support will be at 14.00.

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