A lot has happened lately on lira, and most of events dragged this currency down. When it comes to TRYJPY movement was especially strong as safe haven flows were strong lately. We can see the area of 33.0-33.5 to be a strong support for quite a some time, yet TRYJPY is making lower highs under the descending trendline all the time.
Main fundamental reasons for TRYJPY going downwards lately were:
- Brexit (omg, like it really does something to Tukey or Japan!).
- Terrorist attacks happening in Turkey.
- ISIS being close to Turkey.
- General disorder, plus coup etc.
- Some international quarells with Russia and US.
- Safe haven flows.
- Credit rating being cut.
- Many warzones are near Turkey.
- Some people just dislike Turkey for their political governance and treatment of minorities.
Reasons for TRYJPY to reverse the trend and start an uptrend are:
- TRY is incerdibly underpriced.
- Turkish economy has strong/OK reads and is developing.
- Japanese economy has serious problems and additionally they are connected with the appreciated JPY.
- TRYJPY makes a great carry when long on this one.
- Turkish leader is a good diplomat.
- ISIS is diminishing, soon will pose no threat to any country or will be totally crushed.
- Japan id expanding QE, QQE.
- Japan might further cut rates, there is almost no chance for the rate rise.
- Central bank's policies are not supporting the current trend.
- There is a bubble on JPY.
- Japan's inflation target is 2% - quite far from achieving it.
There is no real danger for Turkey as an independent country. Firstly let's look deeper into the ISIS matter. One of the reasons that will surely produce a big movement upwards on lira is ISIS being likely removed from existence. As we know, US do not like their terroristic enemies to exist and proved very effective in removing those. Secondly, does Russia or US pose threat to Turkey? US and Turkey are officially allies and US is a big trade partner for Turkey. I think Turkey is an important partner for US not only economically but especially on the international/diplomatic basis. Turkey is a main ally to keep the eastern border of EU-US military and business coalition. Russia will not attack Turkey simply as it is not in anyone's interest to start a world war - as it likely would be going to happen if US ally like Turkey was attacked by Russia. Although many would consider President Putin as aggressive, he is definitely not crazy. Even the reaction to the event of shooting down Russia's plane from both Russia and US proven there are no military plans against Turkey from any of those two. Accidental bombing on Turkey commited by Americans also did not change anything according to diplomacy.
I do not want to mention the economic and some other plans of President Erdogan in written words as it is perfectly shown in the latest interview for Bloomberg, that I placed below. We can plainly see Turkish opinion on the matter and that they have good arguments to support their judgement on economy.
What many did not notice, is that the President of Turkey is not only a very intelligent person, but also an economist. Economics in Turkey are actually ameliorating, probably also because of his insight. For those who have lira I'd say: stay calm, their country's economy is definitely in good hands.
I have also decided to place some latest interview with Governor Kuroda, to save myself from writing everything down, which would make this article difficult and too long to study.
The occasion to go long on TRYJPY might be a really rare one and give an exceptional return. Also the risk is not as significant as many would reckon. Note that if trend really reverses here, the next stop is... maybe around 44 level or even higher? In my opinion rebound from the triangle to the upwards is sure and there is an 85% probability of the trend to reverse for a longer time on TRYJPY. It is good to remember that psychology might drive the market - technical analysis that would be - yet those who earn the best money know when to go against the majority as psychology will not drive the trend forever.
To summarise, stack lira against majors in small amounts. Even if it does not appreciate from the all-time lows, mere rebound to the level will give a return due to overnights. TRYJPY is especially an example of that. If lira breaks the descending triangle - keep the long and watch your account grow fast and steady! Consider it a long time carry trade in any of the circumstances mentioned above. TRYJPY and other lira pairs are not good for scalping or even a daytrade as mere market spreads are oscillating between wide and crazy wide - maybe only RUB related pairs can compete on that matter.