Wednesday, 14 December 2011

We Like The Turkey Trade

No, not the the ultimate bull trap that was the "Xmas rally".


I'm talking about shorting the Lira: long USDTRY. Loose fundamentals, nice tail risk exposure. Read on.


The CBRT (Central Bank of the Republic of Turkey) is making a fist of trying to defend the lira, having “managed” a 15-20% depreciation of the lira in the first half of the year, and now seemingly fearful over the inflationary impacts, having seen inflation come in at close to double the year end target of 5.5%
Additionally, Turkey's balance of payment deficit is all but unsustainable with a  -USD4.2bn on the current account for October, below the USD4.4bn consensus but still 24% higher YoY. This serves to put downward pressure on the value of the lira - upward on USDTRY.
Analysts we've spoken with forecast a rise to 2.00 by March. We like the R:R on this short trade, perhaps when paired up with the CHF, as the CBRT has set a "ultra flexible" interest rate corridor of 5.75-12.5% with an average repo rate of 8%.
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