Forex Trading Strategies for USD/TRY Currency Pairs

Instrument description

The major currency pairs prevail the trading activities in the Forex market and account for nearly 80% of the daily market transactions. The U.S Dollar is recognized as the most widely traded currency followed by Euro, Great Britain Pound, and Japanese Yen. There are said to be 180 global currencies, and the value of a currency depends on the economic health and development of a country. Some of the currencies are not commonly traded, but their pairing with the U.S Dollar holds a significant position in the Forex market.

The U.S Dollar quote with the Turkish Lira is one such pair and indicated by USD/TRY where USD is the base currency, and TRY is the counter or quote currency. The USD/TRY may not be as popular as other currency pairs, but it is an ‘Exotic pair,’ as the Turkish economy is on the rise and reckoned as a sizeable force in the coming years. The exotic pairs have low spreads, trade at low volumes, but can be volatile and offer traders to potentially gain or lose from the sudden price movements.

The exchange rate of USD/TRY shows how many Turkish Lira can be converted into one U.S Dollar. For instance, if the current rate shows 1 USD is equal to 6.86 TRY, it means a trader would need to pay 6.86 Turkish Lira to buy 1 U.S Dollar. The USD/TRY is mostly traded by traders and investors in the Turkish Forex market, but gradually the popularity of the pair is increasing.

History of USD/TRY Currency Pair

In the USD/TRY, the focus for analysis has always been the Lira as the U.S Dollar is a much stronger currency and recognized all over the world. The USD is the world’s leading reserve currency and represents the large economy of the U.S.A. Many of the commodities such as oil and gold are also priced in U.S Dollar. The U.S has Gross Domestic Product (GDP) worth $15 Trillion, which is 23% of the entire global GDP.

Turkey is a large country and one of the few countries that exist in two continents as a major part of the country, almost 97% of its area is in Western Asia while the remaining 3% is in South-Eastern Europe. The fertile soils and favorable climate all year round have led the way for development in agriculture. The food, textile, and chemical industry have flourished over the years. However, the service sector, bilateral trades, and tourism contribute heavily to uplift the economy of Turkey.

In January 2005, a new version of Turkish Lira was introduced as the previous one fell so significantly due to inflation that 1 U.S Dollar was worth a staggering 1.5 Million Turkish Lira. The Turkish economy relies on foreign investment, but the local sectors have picked up the pace, and Turkey earns quite a bit of revenue from tourism, and over the years, Turkey is one of the most visited tourist destinations.

But the value of Turkish Lira is not stable, and any global crisis depreciates the TRY. Turkey has always tried to enter the Euro-Zone that represents 19 of the 27 countries that have adopted the Euro as the official currency, but the economy of Turkey is still considered unstable and Turkish Lira has a weak standing among other global currencies.

Looking at the trade relationship between the U.S. and Turkey, statistics show that Turkey imports 0.66% of total exports of the U.S, on the other hand, U.S imports 4.7% of total exports of Turkey. The goods and services that the U.S traded with Turkey amounted to $24 Billion, where exports were $12.7 Billion, and imports were $11.2 Billion. The main components of U.S exports to Turkey include machinery, vehicles, and steel. Turkey has good trade relations with the U.S, Germany, the U.K., and the main exports to the U.S include apparel, transport equipment, and food products.

How to Trade USD/TRY Pair

Due to weak Turkish Lira, the USD/TRY pair is considered a risky pair to trade. However, the pair shows sudden volatility and opportunity for short term traders to try to take advantage. The USD/TRY is traded 24/7 from Monday to Friday, but Monday is quite calm, and the market is quite active on Thursday. The USD/TRY pair among other options can be traded using the Contract of Difference (CFDs), which is a derivative financial instrument and allows a trader to use leverage and with a small initial deposit can open a larger trading position.

With CFDs, trades can be made in both directions, which is either going Long or Short. For example, if a trader thinks the USD will gain value as compared to TRY, then he will go long or Buy, and similarly, if a trader believes that the USD will decline in the coming days in front of TRY, then he would go short or sell. With CFDs, there is an opportunity to magnify profits but equal chances of losses, so a trader may apply a risk management strategy.

How to read the Price Change in USD/TRY Pair

The performance of the USD/TRY is heavily influenced by the correlation among the domestic economy of U.S and Turkey. The Turkish Lira is not known to correlate with the U.S Dollar, but the USD/TRY pair often overshadows the Euro movements. The USD/TRY pair is not a popular trading option for novice traders but can be a lucrative pair to diversify a portfolio of an experienced investor.

The USD/TRY shows high volatility on the Forex market because of the instability of Turkish Lira. The USD/TRY pair sees tremendous fluctuations in both short and medium-term trade. The USD/TRY pair can see movement between 500-700 points in a day, which is even more movement than some of the major currency pairs. If we take a look at the price chart of the USD/TRY pair, we see the pair trading between the values of 5.50 to 6.00 from July 2019 to January 2020. The USD/TRY pair reached a low value of 6.062 on March 4, 2020, and then a high value of 7.195 on May 6, 2020. Currently, the USD/TRY pair trades on 6.8573. The Bid price or is 6.8612, while the Asked price is 6.8546.

When trading if the USD/TRY rate rises, then it means that USD is gaining momentum against the TRY. Similarly, when the rate of USD/TRY pair declines, it shows that USD is losing value, and TRY gaining value. If we look at the data of the last five years, then the quote of USD/TRY reached the highest value of 3.87 in January 2017 and the lowest value of 0.01 in December in 1991. Considering the past statistics, the USD/TRY pair has strengthened in value and trading quite well while showing an upward trend.

What causes price change in USD/TRY pair?

The fundamental or macro-economic factors play an essential part in not only portraying the economic health of the U.S and Turkey but the future value of USD and TRY. The main factors that affect not only the individual USD and TRY but the USD/TRY quote are interest rates, inflation, GDP, unemployment rate, and consumer price index (CPI).

The central banks of both the U.S and Turkey have a huge responsibility to not only release timely economic news but stabilize the currency, and set the interest rates for the year. The Central Bank of the Republic of Turkey (CBRT) and the U.S Federal Reserve Bank also called as Fed releases monetary policies, set the interest rates, and also monitor the inflation rates.

The USD/TRY pair share a strong correlation with other currency pairs that include EUR/TRY and GBP/TRY, where Turkish Lira is the quote currency. The USD/TRY pair can be be traded with both short term and long term strategies due to quite high intra-day volatility. A bullish trend is mostly predicted for the USD/TRY pair. The traders should take help from technical analysis tools such as price charts, and support/resistance levels to accurately spot the entry and exit points and try to prevent financial losses.

The information above is for education purposes only and cannot be considered as investment advice. Past performance is not reliable indicator of future results.