Why did it fall, and why recover?
Since the beginning of November, the Turkish Lira started its free-fall all way up to 18.40 on Monday, December 20, before a 25% recovery to the current level at 13.50.
There are many reasons for these changes. However, for better understanding, we need to go back to 2020, when all currencies against the USD were losing ground while USD was in demand because of its safe-haven mood. At that time, the Turkish Central Bank decided to increase the banking interest rates to control the currency value. This wrong policy during the past 15 months disturb the Turkish economy, as the central bank increased the rates to 19.75%.
After this mass, the Turkish government and President, Mr. Erdogan changed the central bank's chief and finance minister, and finally, they started to change the central bank policy from ultra-Hawkish policy to dovish policy and rate cut plan started. So far, the central bank decreased the rates down to 14% and planning to cut it even more. This policy in the short term will be negative for currency rate, however, lower interest rates will let the businesses and producers have cheaper money to invest. At the same time, it ended with a weaker currency and sent the Turkish Lira down to 18.40 against US Dollar.
Following these changes, at the first step, the government increased the minimum wages by 50%, and finally yesterday, Mr. President announced a new policy with several important points to compensate losses on domestic TRY accounts due to TRY/USD depreciation.
So far today, the Turkish Lira regained 25% of its loss from its all-time low against USD as one of the points of this new policy, the government accepted to offset losses to domestic TRY accounts as a result of the depreciation of the TRY/USD exchange rate. This policy in the short term may save the Turkish currency from more fall, however, it is not the right economic decision, as this found that government needs to pay to recover the losses, come from the public purse.
In the short term, it is just a painkiller, and if the government cannot use the opportunity to increase the exports and boost the economy, soon again we can see the levels observed in previous days.
From the technical point of view also, the overall uptrend did not change, yet. RSI at 54 and increasing OBV trend line still supporting the bulls in the market. 50 DMA at 13.40 is the key support, while 20 DMA at 13.65 also is the key resistance and closing above this level, still holding the bulls in the market. Moving between these two mentioned levels, cannot find any direction.
