EUR/TRY forms rising wedge ahead of ECB, Turkey election

The EUR/TRY exchange rate is sitting at an all-time high as investors wait for the upcoming interest rate decision by the European Central Bank (ECB) and the upcoming Turkish election. It was trading at 21.50, which was about 85% above the lowest level in 2022.

ECB decision and Turkey elections

The most important forex news on Thursday will be the interest rate decision by the European Central Bank. This decision comes a day after the Federal Reserve decided to hike rates by 0.25%, as we wrote here.

Economists believe that the ECB has more room to hike interest rates since it was late in this hiking cycle. Interest rates in the European Union are at 3.5% compared to US, where they jumped to between 5% and 5.25%. 

Therefore, analysts estimate that the ECB will hike rates by 0.25% and a similar amount in the next two straight meetings. Besides, unlike in the United States, Europe is not facing a banking crisis or a collapse of commercial real estate.

The other key catalyst for the EUR/TRY and USD/TRY is this month’s election in Turkey. The election, which is scheduled for May 14, pits Erdogan against a candidate backed by the opposition parties. Most analysts believe that Erdogan has an upper hand.

Therefore, if he wins, it will mean status quo at the Central Bank of Turkey and more Turkish lira sell-off On the other hand, if the opposition wins, it could mean more changes at the CBRT, which will be positive for the lira. 

Data published this week showed that Turkish inflation has crashed in the past few weeks. After peaking at over 90% in 2022, inflation dropped to 44% in April. It has now fallen in the past six straight months and the trend could continue.

EUR/TRY technical analysis

EURUSD chart by TradingView

The daily chart shows that the EUR to TRY exchange rate has been in a bullish trend in the past few months. Most recently, this trend has faded as the pair has formed a rising wedge pattern. In price action analysis, this pattern is usually a bearish sign. It remains slightly above all moving averages.

Therefore, the EUR/TRY pair could have a bearish breakout in the coming days. If this happens, it will likely retest the lower side of the rising wedge pattern at 20.80. A move above the upper side of the wedge will mean that there are more buyers in the market.