Forex Today: Turkish Lira’s Spectacular Rebound on Emergency Package

[OZER]

The Turkish lira makes an extremely strong rebound after losing more than half its value since September as the Turkish government announces an emergency rescue and savings guarantee program.

After falling heavily in value over recent days and months, the Turkish lira rebounded extraordinarily strongly yesterday as the Turkish government announced emergency measures to support the currency plus an effective guarantee against any depreciation in lira savings should the currency's decline against major currencies exceed the lira's rate of interest. The USD/TRY currency pair peaked yesterday at a record high above 18 before plunging as low as 11 just a couple of hours ago, a decline of 38% from peak to trough. At the time of writing, USD/TRY is trading at 13.11. There may be a short-term opportunity to buy on the dip as it remains unclear how much impact the rescue package will have over the longer-term, but Forex brokers are imposing such high spreads (commonly more than 2%) that trading the Turkish lira may not be worth the risk.
The omicron coronavirus variant is continuing to spread rapidly, most notably in the USA, the UK and other European nations. Morbidity from the new variant remains unclear but it seems to transmit extremely easily. The caseload looks set to be huge, with the UK now recording almost 100,000 new cases daily. The spread is also very strong in the Netherlands (which has just implemented a full lockdown), Denmark, and Norway. Markets are spooked by the potential ability of omicron to force more lockdowns and economic disruption. Stock markets everywhere and risk assets such as commodity currencies all fell yesterday. There has been a small rebound over recent hours but markets remain very prone to risk-off sentiment.
The Reserve Bank of Australia released the minutes of its most recent policy meeting which suggested that the RBA will likely end its QE program in February 2022 and that participants remain hopeful that the omicron variant will not derail the ongoing Australian economic recovery. The Australian dollar was slightly higher following the release.
In the Forex market, we are seeing a (potentially short term) retracement against the US dollar, although it should be noted that the US Dollar Index continues to reject a key resistance level just above its current price, so we may be seeing the start of a medium-term bearish reversal against the greenback. The New Zealand dollar is the strongest currency right now, while the Canadian dollar seems to be the weakest major currency. Crude Oil is also notably weak.
Last week saw the a weekly rise in new confirmed coronavirus cases globally, with the highest number being recorded in one week since last August.
It is estimated that 56.8% of the world's population has received at least one dose of a coronavirus vaccination.
Total confirmed new coronavirus cases worldwide stand at over 275.8 million with an average case fatality rate of 1.95%.
The rate of new coronavirus infections appears to now be increasing most quickly in Australia, Bolivia, Canada, Denmark, Ethiopia, Finland, France, Iceland, Italy, Kenya, South Korea, Malta, Monaco, Nigeria, Norway, Portugal, San Marino, Spain, Sweden, Vietnam, the USA, and the UK.

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