For Now, It Might Be Worth Going Cold Turkey On The Lira

After hitting an all-time low earlier this month, the Turkish lira has rebounded somewhat - it's up 4.55% since May 8. The country's central bank has been aggressively defending the currency. But the government has also sent very mixed messages. As The Economist noted recently, the Turkish finance minister held a conference call on May 6 with overseas investors to reassure them that the country had adequate dollar reserves and that it was committed to market principles.

The next day it barred three banks - BNP Paribas, Citigroup and UBS - from trading for several days as punishment for being late on meeting lira obligations.

On May 20, Turkey cut interest rates again - the 9th time in less than a year (from 8.75% to 8.25%). When you take inflation into account, it actually has a real negative interest rate of -2.69%. To shore up its reserves, it also recently got a new lifeline from Qatar, which increased its swaps with Turkey from $5 billion to $15 billion.

Some technicals for the lira appear to be getting stronger. As we show on Excalibur Pro, the MACD line has crossed the MACD Signal Line - that usually spells a buying opportunity. The spot price has worked its way back to the 50-day moving average (still significantly below the 100-day MA and the 200-day MA, though).

And recently, the Markov process that we display on Excalibur Pro has shown bullish signals as well, although in recent days those signals have dropped and bearish signals are back on the rise.

As The Economist headline on one of its graphs reads: "Leery of the Lira." We (and Markov) tend to agree.