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Busch: Money In Motion Turkish Lira Trade

Tuesday, 17 May 2011 | 10:32 AM ET
Turkey
Steven Allen | Brand X Pictures | Getty Images
Turkey

On the latest Money in Motionshow, I put forward an unusual trade for buying Turkish lira and selling the US dollar.

Here are the details:

Turkey as China

· A country with a GDP growth rate similar to China is Turkey.

· At 9.2%, Turkey is an Eastern European country that has weathered the financial crisis without having a single bank fail.

· They also recovered sharply from the global recession and grew at the third fastest rate of growth in the G20 for 2010.

· Like China, the biggest problem: accelerating inflation. Current rate at 4.3%, but expected to go higher throughout the year.

· Where China and Turkey differ is that Turkey runs a large current account deficit and has an unemployment rate of 11.9%.

· After next month's election, the central bank is expected to raise interest rates to deal with the inflation issue.

· This week, Turkey released a big jump in the current account deficit to -9.8 billion and this started a big sell off in stocks and the currency.

· In anticipation, the Istanbul Stock Exchange National 100 Index stock market has fallen from 70335 to 65643 or 6.7% since May 4th.

· For the currency, we've seen the US dollar rally against the Turkish lira from 1.5250 to 1.5875 since April 28th or about 4%.

· On Monday, Turkey releases their unemployment data and I think we'll see a number worse than last month's 11.9%. (Actual number was better than expected at 11.5%) It's after this data; I want to get long Try and short Usd. I believe that almost all of the bad news will have been priced into the currency and it will be ready for a rally.

Sell Usd/buy Try

  • Entry 1.5975
  • S/L 1.6075
  • T/P 1.5475
  • 5:1 risk/reward

Update: The entry was triggered at 1.5975 when the Euro dropped to its lows. Current Usd/Try is trading at 1.5875. For the risk-averse, you can now put your stop at where you got in at 1.5975.

Andrew B. BuschDirector, Global Currency and Public Policy Strategist at BMO Capital Markets, a recognized expert on the world financial markets and how these markets are impacted by political events, and a contributor to CNBC's Money in Motion Currency Trading.You can comment on his piece and reach him hereand you can follow him on Twitter at http://twitter.com/abusch .

Tune In: CNBC's "Money in Motion Currency Trading" airs on Fridays at 5:30pm. "Money in Motion Currency Trading" will repeat on Saturdays at 7pm.

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