Turkish lira sell-off may reverse on Fed stimulus steps - analyst

A sell-off in the Turkish lira may reverse for the time being as the U.S. Federal Reserve increases stimulus measures, said Ibeth Rivero, a commentator for Daily Forex.

Bullish trading in the dollar versus the lira was set to turn bearish as market participants speculated that the Fed could provide $2 trillion of stimulus, double original estimates, Rivero said in an analysis on Monday.

Rivero recommended investors enter the market at 6.58 liras per dollar and take profit at 6.2775 against the U.S. currency, where its short-term support level lies. She set a stop-loss, a level where investors should cash out, at 6.655 per dollar.

“Volatility is expected to remain elevated, and price spikes due to liquidity concerns cannot be excluded, but the magnitude is likely to diminish,” Rivero said.

The Turkish currency strengthened on Tuesday, trading up 0.6 percent at 6.52 per dollar as of 12:38 p.m. Istanbul time. It had dropped to its weakest level since September 2018 at beyond 6.6 per dollar on Monday, taking losses this year to 10 percent.

The lira could weaken going forward, with resistance on the downside located at between 6.95089 per dollar and 7.1244, levels the currency reached during a currency crisis in August 2018, when fears over funding and inflation heightened, she said.

“Forex traders are advised to consider an acceleration into this zone as an outstanding opportunity to place new sell orders,” Rivero said.