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SHORT-STERLING OPTIONS

Mar22 SONIA Call Condor Buyer

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  • USD/TRY trades +0.21% higher at the open, broadly in line with a firmer BBDXY and sustained bullish momentum from yesterday's session.
  • The cross rose +1.34% yesterday following the surprise -100bp cut that wrongfooted markets completely as Erdogan pressure to reduce the key rate finally broke Governor Kavcioglu's resolve.
  • This is a massive blow to CBRT credibility and autonomy with the reasons for the cut being questionable at best amid rising inflation pressure which were simply deemed as being transient.
  • Not a single analyst had envisioned a 100bp cut, which may spark fears of an aggressive cut cycle in the coming months at 100bp or larger increments, irrespective of market conditions.
  • CPI data will be key to monitor from here as higher dollariastion, inflation expectations and TRY weakness pass through to pricing dynamics.
  • 8.8008 resistance came under immediate pressure post-decision, and may give way in today's session as negative sentiment accelerates.
  • The question from here is how the CBRT moves to manage currency volatility from here – whether that be with the burning of reserves or other unconventional monetary policy measures.
  • Nevertheless, the trajectory is concerning. Erdogan comments on S-400s will do little to soothe fears of CAATSA sanctions, especially with the Erdogan-Putin meeting on 29 September.
  • Intraday Sup1: 8.7487, Sup2: 8.7248, Res1: 8.8008, Res2: 8.90, Res3: 9.00