USD/TRY: Bulls and bears jostle around 19.00 as US inflation looms

• USD/TRY struggles for clear directions after snapping two-day downtrend trend previous day.
• Corrective bounce in US Treasury bond yields defends US Dollar bulls but talks of Fed policy pivot weigh on prices.
• An increase in the Turkish Current deficit probe Lira buyers ahead of US CPI.

USD/TRY treads water around 18.95 during early Monday in Europe. In doing so, the Turkish Lira pair seek clear directions amid mixed catalysts from Turkiye and the US. Also likely to restrict the pair’s moves could be the cautious mood ahead of the key US inflation data, namely the Consumer Price Index (CPI) for February.

It’s worth noting that a slump in the Turkish Current Account Balance for January, to $-9.849B versus $-5.91B, allowed the USD/TRY pair to print the first daily gains in three despite the broad US Dollar weakness.

That said, the US Dollar Index (DXY) dropped the most since mid-January as fears emanating from the Silicon Valley Bank (SVB) and the Signature Bank. fallout, despite the US authorities’ defense, put a floor under the greenback. Adding strength to the US Dollar rebound could be the recently firmer US Treasury bond yields.

US 10-year Treasury bond yields print mild gains around 3.57%, after bouncing off the monthly bottom of 3.418%, whereas the two-year counterpart rebounds from the lowest levels since September 2022 to print mild gains of around 4.19% by the press time. It should be noted that the US two-year Treasury bond yields dropped the most since 1987 the previous day while the latest rebound could be a U-turn from the 200-DMA support ahead of important US data.

Alternatively, the recently downbeat concerns surrounding the Federal Reserve’s (Fed) policy pivot, especially after the recent US government efforts to rescue the SVB and the Signature Bank seem to challenge the USD/TRY traders amid a sluggish session.

“The US Fed Fund Futures have priced in a 69% chance of a 25-bps hike at next week's Fed policy meeting, with a more than 30% probability of a pause,” said Reuters while also adding that the market last week was poised for a 50-bps increase prior to the SVB collapse. On the same line could be the CME as it mentioned, “Traders see 33% chance Fed holds rates this month, market pricing shows rate cuts expected as early as June.”

Looking forward, the US CPI will be important for intraday directions but major attention should be given to the risk catalysts and the yields. That said, the US CPI is likely to ease to 6.0% YoY versus 6.4% prior while CPI ex Food & Energy may slide to 5.5% YoY from 5.6% prior.

Technical analysis

Unless providing a daily close below the late 2021 peak surrounding 18.40, the USD/TRY bulls remain in the driver’s seat.