USD/TRY may reverse in the following days - TDS

Cristian Maggio, Head of Emerging Markets Strategy at TD Securities, notes that the Turkish Lira (TRY) has, in fact, appreciated against most EM and DM currencies, being now overbought against USD, GBP, MXN, CNH, RUB and ZAR.

Key quotes

"The Turkish lira is going through one of its strongest runs in a long time. The lira has so far posted an exceptional 10-day uninterrupted streak. Since 22 May, the lira has appreciated by nearly 7% vs USD."

"The moves of the past 10 days have seen 3-month implied vol drop significantly. At 19.4%, vol remains higher than the average of the lira's peers, but has now dropped to levels potentially suggesting the risk of a reversal."

"Capitulation of lira shorts may have benefited from an unwind of ZAR longs. On closer observation, however, TRY strength is the clearly prevailing factor."

"After the Bayram break, local demand for USD may resume on Friday, when FX swap contracts expire. We see an increasing chance that USDTRY is approaching its downside limits and may reverse in the following days."