Turkey's CPI above expectations.

USD/TRY  

• Turkish CPI rose 0.45% mom and 9.32% yoy in July, exceeding the median forecast of a 0.15% rise. Domestic producer prices rose 0.73% mom and 9.46% yoy. Food remained a key driver of inflation, rising by 12.56% yoy in July. Bank Governor Erdem Basci has insisted the bank would only reduce interest rates when it is convinced the outlook for inflation is improving. However, despite inflation hovering at almost double its medium-term target, the bank cut the benchmark interest rate to 8.25% on July 17.
• In our opinion a disappointing reading on Turkish inflation will not stop the central bank from cutting rates again on Aug 27. We expect year-end inflation at the level of 8.5% vs. 7.6% assumed in the central bank's projection. Bond yields went up after the CPI data and the lira appreciated slightly. In our opinion no positions on the USD/TRY are justified from the risk/reward perspective.

Significant technical levels:

Resistance: 2.1400 (hourly high Aug 1), 2.1511 (high Aug 1), 2.1869 (high Mar 31) Support: 2.1290 (200-dma), 2.1078 (low Jul 30), 2.0977 (low Jul 29)

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