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Macro and Vol Commentary 

Turkey has recently changed its Finance Minister and Central Bank Chief, prompting the Lira to rally. Can this be sustained?

Economic Data

  • Turkey's vaccination rate reached 2.613m as of February 8th; the pace has slowed over the last weekend.
  • This will help improve risk appetite in the market, but we expect logistical issues and slow roll-out to impact the economy.
  • The market manufacturing PMI was strong for January at 54.4, up from 50.4 the previous month. New export orders all returned to growth in January, and employment in the sector grew at the fastest pace since December 2017
  • The vaccination rate will have an important role to play in the coming months, and we expect manufacturing to remain above 50
  • Export orders will continue to rise in tandem with vaccination rates and the opening of economies worldwide; we expect global growth to start to synchronise in Q1.
  • Credit expenditure increased to 17% y/y (4-week average) as of January 15th, but the total value of retail payments grew at 35% y/y (4-week average)
  • Industrial production in November was up 1.3% from the previous month, but up 11% y/y
  • Turkey's unemployment rate is at 12.7%, while savings ratios have broadly increased, but with credit levels elevated, there may be a delay to consumer spending returning strongly.
  • Consumer confidence in January improved to 83.3, up from 80.1. We expect confidence to improve as we move through Q1 and the vaccination rate increases
  • Economic confidence also improved in January to 96.2, up from a revised 94.7 the previous month.
  • CPI in January increased 1.68% m/m and up 14.97% y/y. The core index increased by 15.5% y/y
  • The expected inflation rate for the next 12 months is 10.53%
  • Rising energy prices and the Lira weakness have increased costs to companies, and this has been passed onto the consumer.
  • The rise in inflation has caused real interest rates to decline.
  • GDP improved in Q4 2020 to 2.7%, up from 1.6%. Forecast for GDP in 2021 suggest we could see growth reached 4.3% and 4.1% in 2022

Central Bank Policy

  • The central bank maintained its inflation forecast for 2021 at 9.4%; this suggests a hawkish monetary policy bias. The long term target is 7% at the end of 2022
  • Interest rates have increased to 17%, which has strengthened the Lira. The new hawkish bias will cause inflation to slowly decline as the Lira looks to regain some of the recent losses.
  • Foreigners net bond investment was $33m in the week to January, up from -$18m
  • Foreigners net stock investment declined to -$118m, down from $31m the previous month.

The change in personnel at the top of Turkey's Central Bank and Ministry of Finance has changed the Lira course, as investor confidence and appetite for the currency have improved. While there is a long way to go, to get the economy back on track, the right steps are being taken. We could see credit in Turkey tighten in the coming months. The government balance declined in December to -40.6bn Lira; government debt increased this year due to COVID-19 as growth and trade start to improve this becomes less of a problem, assuming that Turkey can sustain higher growth levels. The change in tactic from the central bank was needed, we expect real interest rates to decline and the currency to strengthen, assuming that the vaccine administration's pace can remain healthy and the country will look to welcome tourists once again, a big earner for Turkey. Turkey's 10yr bond yield remains attractive to yield hunting investors compared to other rates. US inflation is released this week, and a strong reading may present some investors to speculate about the Fed's rate path, but we know that they are happy to maintain higher inflation for longer and believe a hike in rates in the US is a long way off, higher US rates and stronger dollar will likely be detrimental to the Lira. We favour owning lira in the near term but like previous years there remains a large risk from President Erdogan.

Volatility Commentary

Over the tail end of 2020 and opening of this year, we have seen USDTRY spot and vols come off with vol realising below implied, with Covid case numbers down and vaccines being rolled out in Turkey. With economic indicators improving as per above along with a potentially hawkish bias to central bank policy we see the trends in USDTRY spot and vol continuing. In the past few years, political risk has been on the cards with TRY with Presidents Trump and Erdogan not always seeing eye to eye (to put it gently), however, with the new US President Biden wanting to normalise US foreign policy, there is also the potential for a reduction in political risk here with a potential reset in relations.

USDTRY 1-month Realised and Implied Volatility

USDTRY Trade Idea

  • Buy 3-month EKI in 10m USD Notional with Put Strike 7.000 and EKI Barrier 6.9000 for circa 112k USD
  • Sell 3-month Call Strike in 7.5m USD Notional with strikes 7.2000 and 7.5000 for circa 115k USD
  • Overall strategy upfront receive premium 3k USD

Positioning Charts

USDBRL NDO Positioning Data 26/01/2021 - 02/02/2021

Positional data for USDBRL NDOs in the week to February 9th show a reduced appetite for puts with a larger national value. Option execution with expiries in the next week around spot from either calls or puts have a lower notional value than options executed which expire in March. There is a band of put options due to expire in the first 2-weeks of March with large notional values which could give the BRL more traction in the long run and therefore see USDBRL weaken. Near term, momentum suggests we could see USDBRL consolidate but as we move towards the larger expiries BRL momentum could resume.

USDBRL NDO Positioning Data 02/02/2021 - 09/02/2021

USDCNY Vanilla Positioning Data 26/01/2021 - 02/02/2021

In the week to 9th February, there was a greater appetite for put options with expiries between now and mid-March. This suggests that more appetite for the downside for USDCNY in the coming months. The notional for the options with expiries in the near term is large than the previous week suggesting improved appetite in the market. We expect the current trend to continue with a downside bias in the options market in the coming weeks.

USDCNY Vanilla Positioning Data 02/02/2021 - 09/02/2021

USDTRY Vanilla Positioning Data 09/12/2020 - 09/01/2021

There were fewer put options executed for the month to February 9th, which suggests waning downside cover in the market. This could suggest the recent rally could pause in the near term, there are more call options executed in the month to February 9th. This also suggests we could see USDTRY strengthen in the near term, however, some of these options are significantly above the market.

USDTRY Vanilla Positioning Data  09/01/2021 - 09/02/2021

Charts and Tables

FX Expiries


Volatility Grid

Historical Spot FX Volatility (30D Rolling)

FX Matrix (today)

Weekly Change


Key Events & Releases

Technical Charts

JP Morgan Global FX Volatility Index

The index has softened in recent weeks after failing above 7.40. The stochastics are negative, with %K/%D in the oversold, while MACD is seen converging on the upside, suggesting we could see a change of trend in the near term. Trend resistance has held firm in recent weeks, and this has prompted a lower low environment, we have seen a three black crows formation in recent sessions. Repeated rejection of higher prices and trend resistance could trigger losses through support at 7.15 before the 7.10 level. On the upside, the index needs to break trend resistance and then the 100 DMA at 7.52 and then resistance at 7.62; this would make the index break out of the wedge formation. In the near term, we expect to see a continuation of bearish momentum.

Dollar Index

The dollar index has found weakness since failing above 100 DMA; this caused a test of support at 90.285. The stochastics are falling and have given a sell signal, with %K/%D trading the oversold, while the MACD diff is negative but converging on the upside. We anticipate prices to push back towards support at 90.194. If that level is breached, we could see prices lower at 90.048, confirming the double bottom formation. In order to confirm the outlook of higher prices, prices need to take out 90.500 and the moving averages at 90.377 and 90.673. There has been an increased appetite for lower prices, and we expect this momentum to continue in the near term.


USDTRY has continued to fall in recent sessions; the indicators are in negative territory. The stochastics continue to deteriorate further into the oversold territory. The RSI is also falling, and the MACD diff is positive and converging, suggesting higher lower in the near term. The index gained support at 7.0298 – this level held firm in recent sessions. If selling pressure remains strong, we could see the index take out 7.00; this level was last seen in August. Conversely, if the index gains support around 7.00, this could trigger gains back towards 7.10, with the secondary resistance at 50 DMA at 7.1330. We expect the index to remain on the back foot; however, prices need to break below the 7.00 level before confirming the downside trend in the long run.



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