USD/TRY forms bearish pennant as Turkish retail sales fall to record lows

The USD/TRY pair declined after the Turkish bureau of statistics released damning industrial production and retail sales data. The pair is trading at 6.8177, which I lower than yesterday’s high of 6.8536.

Turkish retail sales collapse

The Turkish lira gained against the US dollar even after the country released weak April retail sales numbers. The data showed that volume of retail goods fell by 19.3% on an annual basis as more people stayed indoors due to the coronavirus. The volume fell by 21.0% on a month on month basis. In March, the sales fell by 0.2% and 8.1% respectively.

In the same month, retail turnover declined by 13.6% on an annual basis and by 20.5% on a monthly basis.

These numbers show how the coronavirus pandemic has affected Turkey, one of the leading emerging market economies in the world. The disease has infected more than 174,000 people in the country and killed more than 4,700 of them. Also, while the daily number of infections has fallen from the peak of 5,100 in April, the current pace of less than 1,000 is still high.

According to the Turkish statistics office, textiles, clothing, and footwear were the worst-performers, falling by 68.2% in April. Obviously, few people were interested in these items during the shutdown. Computers, books and telecommunications equipment followed, falling by 30.7%. In all, non-food items declined by 31.5% while food, tobacco, and drinks declined by 5.2%.

These numbers came a week after the USD/TRY pair reacted to May inflation data released by the department. The data showed that headline consumer prices rose by a monthly rate of 1.36% and an annual rate of 11.39%.

Turkish industrial production fall

As with the United Kingdom, the industrial sector had one of its biggest declines in modern times. According to the statistics office, industrial production declined by 31.4% annually and by 30.4% monthly.

All industrial sectors declined. Mining and quarrying sectors declined by 13% on an annualised basis while the manufacturing index fell by 32.5%. Electricity, gas, and steam sectors fell by 12.4%.

These numbers validate the point that Turkey is headed to its worst recession in modern years, a few months after it emerged from another one. In a recent Reuters poll, analysts estimated that the country will contract by 1.4% in 2020. They expected the economy to fall by 8.6% and 5.3% in the second and third quarters respectively. With the data released today, there is a likelihood that the economy’s decline will be worse than expected.

Meanwhile, the USD/TRY pair has been falling, even as policymakers pump money at the fastest pace in a decade. They are achieving this through state lenders and the Turkish Central Bank, which has slashed rates 9 times this year. Part of their goal is to weaken the lira and promote exports.

Also, the government has put more measures that affect the currency. This month, it announced a new move to ban hedge funds that focus primarily on foreign exchange assets. It will also impose more taxes on funds that focus on this industry. According to Bloomberg, this move will affect funds with about $3 billion of assets.

USD/TRY technical outlook

The USD/TRY pair is trading at 6.8177, which is slightly higher than last week’s low of 6.6770. On the daily chart, the price is along the 23.6% Fibonacci retracement level. Most importantly, the pair is forming a bearish pennant, which is shown in black. This is a signal that the pair will likely breakout lower as bears attempt to move below the low of 0.6770 and the 38.2% retracement of 6.5580.