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TURKISH LIRA: Morgan Stanley entered a short USDTRY position at Thursday's NY
close, with a target of 3.85 and a stop at 4.15. The cross is trading at 4.0420
- Morgan Stanley believe that the "early elections called by President Erdogan
will be positive for TRY. Investors are concerned that the fast credit expansion
would continue ahead of the elections and could lead to higher inflation and
wider current account deficit. We don't disagree, but we believe the CBT could
tighten its monetary policy to support the currency, which is important for
voters. Our economist believes the CBT could tighten its monetary policy by
hiking the blended funding rate by 75bp and the late liquidity window somewhere
around 16%. This would send a strong signal to the market that it has the
flexibility to fund the market at a much higher rate if needed, which would help
TRY rally, in our view. Lastly, positioning in TRY is light. Our tracker of
GBI-EM investors' positioning shows that investors are UW TRY vs the history
since late 2016. The risk to the trade is under-delivery by the CBT."