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[size=100" />Why I was short USDTRY?Explaining my trade.
Since beginning of the week I'm running a short position in USD/TRY and I'm well over 600 pips in profits. The main reason why I got short is mainly because Turkey's Central bank raised the interest rates and secondly because of the high volatility in emerging market currency. Actually this is the first time I'm trading emerging market currencies. I always try to trade where the hot money are.
Last weeks the main market driven theme and risk events was coming from the emerging market crisis. In a desperate attempt to tame down a weak Turkish lira we saw Turkey's Central bank raising the overnight leading rate to staggering amount of 12.5% , a 4.75% raise from 7.75%.
In Figure 1 we can see that market reaction to Turkish Central Bank rate decision was very strong and a strong sell of took place but few hours later we saw the entire sell of being consumed back up. In the first place this action happened because the sell of was fueled of long covering thus they need to sell their position. The reason why I took this short position was because eventually the market will turn back and follow the line of least resistance and retest those levels.
- Figure 1. USD/TRY 1h chart. Market reaction to CB rate decision. (click on the picture to enlarge)
What is taking place right now in Turkey is the confidence collapses in government thus the rates rise because of fear of an risk event cascade. Also it can be seen that after interest rate decision the price action was channeling, thus the other reason why I enter short at the top of the channel, anticipating a break lower.
Best Regards,
Daytrader21
