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Foreign Exchange

FX research roundup: Not Christmas but is it time for Turkey?

Thinking about Greece’s problems led me to wonder if there might be something positive in this mess for Turkey.

Long gone is the time when UK bank holidays meant London FX traders got the day off; this week will likely see more traders on parade that any previous Good Friday. The release of US non-farm payrolls would ordinarily have been something of a draw, but on this occasion the original market expectations of the largest gain in payrolls in three years, modified by Wednesday’s disappointing ADP figure, have made the announcement the biggest number of the year so far.

So it was no surprise that a lot of the research this week was focussed on the employment numbers. The mother theme was a gradual recognition by commentators that the EU’s support mechanism was, yet again, nothing but words.

The lack of real EU support leaves Greece in a world of trouble. Looking at Tuesday’s issuance madness (summed up nicely by Zero Hedge), it knows it. Thinking about Greece’s problems led me to wonder if there might be something positive in this mess for Turkey.

Perhaps Greece, with a military budget of around 4% of GDP needing to be savagely pruned, might now be more amenable to some resolution in Cyprus. But that wouldn’t mean Turkey’s EU membership is any more likely. Even if there was still popular support in Turkey for the idea, Merkel’s visit at the start of the week has made it clear she is still implacably opposed.

But while the southern EU states are viewed so negatively, isn’t Turkey benefiting from an increase in investment inflows?

Not yet, according to Angus Halkett in Deutsche’s FX strategy weekly. Deutsche is sticking to its short USD/TRY position (target 1.4800) for which Halkett makes a good case, but he doesn't think a move is imminent: “...growth is returning stronger than most other markets in the region, the lira seems cheap, residents hold $100 billion of FX deposits and fiscal policy is better than most EMEA. Furthermore, the yield curve is very steep and CBRT are unlikely to hike soon”. But “...there is so little investor interest. We presume that investors (and Turkey retail) are simply unwilling to buyTurkey at yields just over half the average 2005-2008 level.”

But the guys at BNP Paribas might be happy to take the other side of the trade: “Equity markets have remained buoyant, supporting the lira although we expect the currency to remain vulnerable in the medium term especially versus a rising dollar. The trade balance will be interesting to watch on Wednesday after the deficit surprised to the upside in January given rising energy imports. Q4 GDP data are expected to show a strong rebound from recession. We would buy USDTRY on any dip.”

Perhaps short EUR/TRY makes more sense. Jyske Bank is schizophrenic about it: in its EM publication, as of March 31, it has a bullish TRY objective of 2.02 over three months. Yet in an piece published on a retail FX advice site Jyske declares: “We have thrown caution to the when and have decided to buy EUR/TRY today, targeting a move to 2.12”. I think they mean “wind”.

Turkish GDP on Wednesday surprised to the upside; rate hikes were not expected until the third quarter this year, but there is now some suggestion that this might be sooner.

FX research roundup: Turkey flies high, Greece skids again, CAD is a bounder (to parity)

April 09, 2010

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