Turkish Lira remains bearish on economic growth concerns

In the past one week, USDTRY (Dollar-Turkish Lira) pair has appreciated from a low of 2.8391 to a high of 2.8898. In fact, the Turkish Lira lost against most of the currencies, including those of the commodity based economies (Australia, New Zealand and Canada).

The currency was able to gain 19% and 30% only against Brazil and Russia respectively. In fact, due to the reasons stated below, the USDTRY pair is expected to rise further to about 3.0 by the end of 2016.

Turkey is one of the leaders in the manufacture of agricultural products, textiles and consumer electronic goods.

However, domestic growth contributes to the majority of economic growth rather than exports. In fact, tourism contributes to half of the current account earnings of Turkey. Tourists mainly arrive from Russia, Germany, Italy and Japan.

The depreciation of the Russian Ruble has put a lot of constraints on the Russian tourists. The number of Russian tourists who visited the country in 2015 was about 3.6 million, down one million from the previous year. Similarly, the arrival of the German and the Japanese tourists declined 25% and 40% respectively in 2015. The rising number of suicide bombings is mainly the reason for such a decline. Overall, the number of visitors to Turkey decreased 1.6% in 2015, compared to 2014.

The shooting of the Russian fighter jet and the economic sanctions that followed is expected to hit the Turkey’s tourist sector in a hard manner this year. Morgan Stanley anticipates that the Russian tourists’ number would decrease to even one million or lower this year. The tourism sector is expected to lose about $8 billion in 2016 the because of Russian sanctions and terrorism related issues.

PBS NewsHour: 28 Nov 2015

Volatility in the energy prices and a rise in food prices continue to put pressure on the inflation rate. The inflation rate of Turkey’s was 8.81% in 2015. The Turkey’s Central bank was unable to achieve its target rate of 5% for the fifth time. The inflation is expected to remain between 6.5% and 7.5% in 2016. The high inflation rate forms the basis for the unemployment issues. In Turkey, the unemployment rate hit a high of 11.3% in January 2015. In the fiscal 2016, the unemployment rate is expected to remain at 11.2%.

Technically, the USDTRY currency pair has a firm support at 2.8730. The currency pair has successfully crossed the 50-day moving average of 2.8754 and stays above it.

The MACD is currently positive and rising. The currency pair is expected to face stiff resistance at 2.9070. Thus, a forex trader should take a long position at the current level (2.8800) with a stop loss order below 2.8600. The target for the long position is 2.9000. The risk to reward ratio for the trade is 1:2.

A binary options trader should purchase a one touch call option contract with expiry in the final week of April. A target level close to 2.8950 will make the trade relatively risk free.