The dollar, which has been trading in a tight band for a long time, has once again topped the list of most debated topics. While prices on the shelves continue to rise, citizens are watching with concern where the cost of living will end up. Let’s rewind the movie a bit; not so much until last September… The consensus in the markets was that rate cuts would come in the last few months of the year. This was an expectation derived from the statements made, not what the markets wanted or were hoping for. By September, the decision to cut interest rates came as a “surprise” and the policy rate (1-week repo) was cut to 14 percent for a total cut of 500 basis points in 4 months.
YOU DON’T WANT TO EAT ON THE INFLATION
The dollar, which was trading at 8.76 TL before the September 24 rate cut, rose to 18.36 TL on 20 December. The currency-protected deposit product (KKM) was introduced to prevent the majority of Turkish lira holders from trying to convert into foreign currency. With this move, the dollar quickly retreated from its all-time high, hovering in a range of 13.15 – 14.90 TL until early May. However, from the first week of May, the direction of the dollar turned upwards again and the week that we passed, it again reached the 16.50 TL limit. The fact that the yields in KKM were below the rate of inflation actually reduced interest in this product as the yields were as high as the rise in the exchange rate. The ‘lag’ of the last expected bond/deposit product for those looking to protect their savings from inflation also created upward pressure.
THE ONLY HOPE TOURISM INCOME
According to the news of Ufuk Korcan from Dünya newspaper; Rising commodity prices overseas, the ailing US Federal Reserve, the ongoing war between Russia and Ukraine, and weak belief that inflation will slow in an environment of negative real interest rates are keeping foreign exchange demand alive. So how will blood pressure drop in exchange rates? There is a prevailing view that expectation management should be implemented, which includes concrete steps to reduce the number of those who believe inflation will fall into the ‘majority’. That’s the first item on the to-do list. In addition, the increase in global commodity prices, which we cannot intervene, must also be stopped. It is difficult to find a solution for the two most important points in the short term. It is therefore assumed that the pressure on exchange rates will continue for a while. So much so that the rating agency Moody’s raised its estimate of 35 percent inflation at the end of 2022 to 52.1 percent in March, while the Central Bank Expectations Survey saw this figure rise to 57.92 percent. The only hope at the moment is tourism revenue, which is expected to increase in the coming summer months.
2,460 POINTS MUST BE EXCEEDED TO CONTINUE THE RISE OF THE STOCK MARKET
For the BIST 100 index, which has turned higher as the exchange rate strengthened, the risk of a breach of 2.408 support has disappeared for now by holding 2.354 support. However, on April 22, 2022, the index started a short-term downtrend. In order to be able to speak of real relief, this trend line must first be exceeded to the upside. This requires breaking the 2440-2460 band with volume and seeing voluminous deals above that range. In this case, 2,480-2,500 point levels can be aimed for in the first stage. Caution should be exercised on any downside if it breaks below 2,408 points.
RESOLUTION IN EXCHANGE ACCOUNTS SLOWDOWN
With KKM, the resolution of Foreign Exchange Deposit Accounts (DTH) at banks has slowed in recent weeks. The size of DTH, which was $237 billion on Dec. 20 when KKM was announced, had dropped to $213.7 billion by April 29. In other words, there was a liquidation of approximately $25 billion in foreign exchange accounts. However, as of May, there was an increase of $718 million in foreign currency accounts in 3 weeks. The largest increase in individual domestic investor accounts over the past 5 weeks was $686 million for the week of May 20th. Looking at the upward movement in exchange rates during the week of May 13th as a selling opportunity shows that domestic investors started buying again last week.
15.07 TL LEVEL IN DOLLARS IS CRITICAL
The uptrend that started on Jan 3, 2022 at the 12.75 TL level is continuing on the USD/TL parity. Although this trend’s support point has been tested many times since then, it has not breached it yet. This is the main factor indicating the pair’s willingness to stay above this trend line. For the next week, the support point of this trend coincides with the 15.07 TL level. Moreover, it is worth noting that the 15.73 TL level, which previously acted as a resistance level, is now acting as a support point. In other words, to speak of parity relieving down, one must first get below these levels. In particular, a fall below the 15.07 TL level may cause a pullback move to 13.27 TL in parity. This is actually the support point of the main trend that started on September 06, 2021. Moreover, staying above the 15.73 TL level in the negative scenario may bring a risk of a rise to the 17.07 TL level in the first phase.
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