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June 14, 2022

This 1 Pair Worth Buying

Michael J. Donoghue
This 1 Pair Worth Buying

While there are many currency pairs worth buying and selling in the foreign exchange markets, often pairs worth watching fly under the radar of retail traders. The EdgeFinder, an A1 Trading tool for traders aiming to holistically bolster their analysis skills, is helpful for identifying such opportunities for trade setups. As we wait for tomorrow afternoon’s big FOMC news, today we will look at a unique pair: USD/TRY, the US Dollar Turkish Lira pair. It is the only one that the EdgeFinder currently evaluates as being strongly worth buying, and we will discuss why. We will employ fundamental, technical, and sentiment analysis as we assess this 1 pair worth buying.

Fundamental Analysis

In terms of fundamental analysis, data is disproportionately bullish. Although Turkey has experienced recent GDP growth while US GDP has contracted, the Turkish lira has suffered a near-collapse in value, with year-over-year inflation currently at an unbearable 73.5%. Although the Central Bank of the Republic of Turkey (CBRT) currently has interest rates around 14%, this has not been enough to successfully mitigate economic suffering, as stagflation persists and unemployment hovers in the double digits. Tensions between Turkish President Recep Tayyip Erdoğan and the CBRT regarding monetary policy have not helped. Thus, in this unusual and tragic case, substantially higher interest rates than the US is not a bearish signal for this pair.

Technical & Sentiment Analysis

This 1 Pair Worth Buying

In terms of technical analysis, the pair has been trending upwards for years. 2021 saw a staggering breakout to the upside, reaching a high over 18, then selling off to below 11 before price action found support and resumed trending upwards. Price action is currently testing these previous resistance zones again, with weighted moving averages functioning as support while a breakout to the upside seems likely. In terms of sentiment analysis, according to the latest COT data, over 75% of institutional traders are long on USD, while such information is not available for TRY. Meanwhile, only 25% of retail traders are long on this pair, another bullish signal. In light of the economic pessimism in Turkey due to the lira’s instability, sentiment for the pair seems strongly bullish.

Potential Trade Setups

The Edgefinder gives USD/TRY a score of 6, earning it the software’s only ‘strong buy’ signal. However, I hope everyone will nonetheless be careful trading this pair, as it has often been extraordinarily volatile. Using small positions and careful stop losses would be particularly wise here. In terms of possible points of entry, conservative traders could wait for tomorrow’s FOMC news as a potential bullish fundamental catalyst.

Even if the news unexpectedly means a surprisingly bearish turn for USD, you could still potentially use the new selling pressure to wait for a retest of the 16.5 zone as support. Given the unfortunate economic circumstances influencing TRY, even bearish news for USD would likely not have the same long-term implications for this pair as for others.

Key Takeaways

  • USD/TRY is the only currency pair that has earned a ‘strong buy’ rating from the EdgeFinder, a key A1 Trading analysis tool.
  • Fundamental analysis strongly favors USD over TRY due to the near collapse of the Turkish lira’s value and the resulting complications for Turkey’s economy.
  • Technical analysis shows a strong uptrend with past resistance zones currently being tested, and seemingly resilient support thus far.
  • Sentiment analysis shows most institutional traders long on USD and most retail traders short on USD/TRY. Given the economic pessimism in Turkey, this is all quite bullish.
  • Conservative traders may want to wait for, and gauge, tomorrow’s FOMC news before going long. Given the pair’s volatility, small positions and stop losses are key.

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