USD/TRY shooting star formed at peak, breaks below H&S neckline
Technical glimpse:
A "shooting star" pattern candle formed at peak of 2.9466 on monthly chart of this exotic pair.
Uptrend drifts in sideways from last 6 months or so, but now shooting star appears at peaks with leading oscillators diverging, this evidences bullish momentum wiping off and little weakness can be seen.
To substantiate this, "head and shoulder" pattern formed on daily charts, bears have managed to break below the neckline of H&S at 2.9025 levels that signifies the weakness to prolong further.
However, for intraday and short term sentiments have been quite bullish with minor resistance at 2.8825 levels (upper BB).
One can expect higher targets about 100-140 pips as long as the current level holds, otherwise, drift below 2.8676 is quite certain, bears can even drag upto 2.8218 where we can see strong support on monthly charts.
Well, to be precise, the pair shows little strength for short term traders and weakness for long term investors.
What causes hedging TRY's FX risks:
We see a slight deterioration in the TRY spot in the long run, due to rising oil prices and weaker exports, which we believe will add to pressure on the current account deficit.
As crude sensing strength at current WTI prices at $40 a barel, a potential higher oil prices would put renewed pressure on the current account.
Uncertainty about Turkish cross-border military operations, current geopolitical risks and volatile FX inflows could fuel a deterioration in sentiment.
Further dovishness by major central banks is a strong upside risk for our TRY forecasts.
Geopolitical risks could depress the Turkish economy on the back of Russia’s sanctions.
Hedging Strategy of USD/TRY : Diagonal Spread
Hence, go long in 1M ATM -0.49 delta put option while shorting 2W (1.5%) Out of the money put with positive theta or closer to zero for time decay advantage on shorter tenors on short side.
Please observe the payoff table, as USDTRY drifts below spot ref: 2.8647 the strategy constructed above is likely to fetch positive cashflow on expiry, but use tenors as accurately as stated above.
A "shooting star" pattern candle formed at peak of 2.9466 on monthly chart of this exotic pair.
Uptrend drifts in sideways from last 6 months or so, but now shooting star appears at peaks with leading oscillators diverging, this evidences bullish momentum wiping off and little weakness can be seen.
To substantiate this, "head and shoulder" pattern formed on daily charts, bears have managed to break below the neckline of H&S at 2.9025 levels that signifies the weakness to prolong further.
However, for intraday and short term sentiments have been quite bullish with minor resistance at 2.8825 levels (upper BB).
One can expect higher targets about 100-140 pips as long as the current level holds, otherwise, drift below 2.8676 is quite certain, bears can even drag upto 2.8218 where we can see strong support on monthly charts.
Well, to be precise, the pair shows little strength for short term traders and weakness for long term investors.
What causes hedging TRY's FX risks:
We see a slight deterioration in the TRY spot in the long run, due to rising oil prices and weaker exports, which we believe will add to pressure on the current account deficit.
As crude sensing strength at current WTI prices at $40 a barel, a potential higher oil prices would put renewed pressure on the current account.
Uncertainty about Turkish cross-border military operations, current geopolitical risks and volatile FX inflows could fuel a deterioration in sentiment.
Further dovishness by major central banks is a strong upside risk for our TRY forecasts.
Geopolitical risks could depress the Turkish economy on the back of Russia’s sanctions.
Hedging Strategy of USD/TRY : Diagonal Spread
Hence, go long in 1M ATM -0.49 delta put option while shorting 2W (1.5%) Out of the money put with positive theta or closer to zero for time decay advantage on shorter tenors on short side.
Please observe the payoff table, as USDTRY drifts below spot ref: 2.8647 the strategy constructed above is likely to fetch positive cashflow on expiry, but use tenors as accurately as stated above.
