By Talking Points:
- Looking Outside the "Usual Suspects"
- Chance to Buy USD/TRY on Weakness
- Triple Confluence Supporting the Trade
Last week, we discussed NOKSEK, an exotic and lesser-followed cross pair that combines the two major Nordic currencies, the Norwegian krone (NOK) and Swedish krona (SEK).
See recent: A Big Breakout Brewing in a Little-Known Pair
Today, we’ll continue to explore the exotics and look at the Turkish lira (TRY), and why, like many of the other exotic currencies, it offers compelling advantages and should not be ignored by most currency traders.
This past week, we saw dramatic moves in the Australian dollar (AUD), Japanese yen (JPY), and many of the British pound (GBP) crosses. These large moves put many of these pairs in overbought/oversold conditions, effectively reducing their appeal in this holiday-shortened week.
With so many pairs now largely out of favor, it’s worth looking outside of the “usual suspects” when searching for trading opportunities with more favorable risk/reward profiles.
One such opportunity can be found this week in the Turkish lira, which has been grinding its way lower against the US dollar (USD) since February. Now, the recent weakness in USDTRY may provide a nice opportunity to join the dominant trend.
TRY has been well-bid the past three weeks or so as the Turkish central bank has been making plans to rein in inflation by stopping one-month repo auctions, which translates to higher interest rates, similar to the proposed tapering of QE measures by the Federal Reserve.
Lira gains may be capped against the dollar now, however, as the pair nears significant technical support levels. USD/TRY is nearing both a retest of a broken descending trend line from this month’s highs, as well as a fourth test of a major ascending trend line that dates back to early-September. The pair is also nearing the 2.0 level, which marked a major support level on November 20.
Guest Commentary: Technical Price Action in USD/TRY
This triple confluence provides an attractive bounce possibility for traders looking for opportunities to buy the USD. A move higher targets the 2.5 region, while a daily close below the ascending trend line would invalidate the set-up, while also providing a great short possibility.
This set-up carries about a 5:1 reward/risk ratio, which is good enough to make this an attractive trade target despite the low liquidity and (slightly) wider spread associated with USDTRY.
By Liam McMahon, Currency Strategist, GlobalFxClub.com
original source
