USD/TRY volatility returns ahead of Sunday's elections

The Turkish lira has seen a volatile week, with impending local elections and actions to limit USD/TRY sales hitting confidence.

Volatility is back for the Turkish lira, with the local elections planned for Sunday raising the likeliness of major disruptions to their financial markets.

Turkey President Recep Tayyip Erdoğan has front-run any such volatility, ensuring market unease after threatening to punish anyone found to be speculating against the Turkish lira. The beneficial interest rates provided in Turkey has helped drive carry trades over recent months. However, with the political uncertainty ahead, Erdoğan has moved to ensure there is less chance of a significant dump in the lira like that seen around the June presidential powers vote. The push to tighten the ability for foreign banks to dump their lira saw overnight swaps rise to more than 1000% in an unprecedented move to protect the currency. This has also hindered the plans of those long TRY traders that wished to exit their carry trades. Meanwhile, JP Morgan warned that they saw it prudent to sell the lira, and despite the actions of the Erdoğan, we have seen the lira lose ground today.

Sunday’s local elections will determine control of money and power throughout the country, with local officials being appointed across 81 provinces. That means mayors (Erdoğan started as mayor of Istanbul), all the way down to village representatives. However, while this is a locally-focused vote, the Turks will deem this a reflection of the balance of support for Erdoğan’s AK Party. Typically, markets have seen the continued dominance of the AK Party as a positive as it ensures a more stable political picture. Despite Erdoğan’s perceived downfalls, his grip on the country means that any challenges are unlikely to be taken well.

With the president controlling the military (who will be out in force on Sunday), the media (who have been ramping up pro-Erdoğan messaging), and the status of his opponents (many are jailed or declared members of terrorist groups), the cynics will presume that it will be a done deal for the AK Party. However, we are seeing significant challenges at two of the most critical areas. Firstly, the CHP candidate is widely speculated to wrestle power away from the AK Party in Ankara. Meanwhile, support for the AK Party in Istanbul is also said to be waning. These two huge strongholds will be crucial signals of power that will likely affect the lira.

From a charting perspective, we have seen significant support for the lira over the first two days of the week, with TRY selling restrictions likely having an effect. However, we are seeing the pair move higher once again, following on from what looks like a retracement. The previous failure to create a new low below ₺5.1343, coupled with an inside trendline, and bullish divergence (higher highs in stochastic) points towards the possibility that we are forming a bottom here for USD/TRY. Certainly, a break below ₺5.1607 would provide us with a more bearish picture. However, as we move towards Sunday’s vote, there is likely to be substantial volatility and the possibility of a long-term trend shift in the event of a move through ₺5.845.

Much of the effect of this event will come from the outcome itself, and with Erdoğan having managed to maintain and even enhance power throughout his political career, another raft of AK Party victories would not be a surprise. However, with market interference, the threat of a switch in control for two of the most important cities in the country, and some bullish technical signs, there is certainly an interesting story building ahead of Sunday’s vote.

IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.

Please see important Research Disclaimer.

Start trading forex today

Trade the largest and most volatile financial market in the world.

  • Spreads start at just 0.6 points on EUR/USD
  • Analyse market movements with our essential selection of charts
  • Speculate from a range of platforms, including on mobile

Live prices on most popular markets

  • Forex
  • Shares
  • Indices

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.


Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.

The Momentum Report

Get the week’s momentum report sent directly to your inbox every Monday for FREE. The Week Ahead gives you a full calendar of upcoming key events to monitor in the coming week, as well as commentary and insight from our expert analysts on the major indices to watch.

For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.