Turkey lira trading on a watershed day

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Turkey lira trading on a watershed day

LONDON, Nov 25 Reuters -- The Turkish lira suffered a historic 15% fall in a session marked by thin trading volumes and dwindling liquidity, and gauges are pointing towards more rocky times ahead.

Below are four charts showing the trading on a watershed day for the lira.

Data showed that the number of trades had decreased as the lira plunged to its record low of 13.45 to the dollar on Tuesday. The amount of deals hit a new all time high when the lira was just under 10 to the dollar.

Market makers shy away from offering trading liquidity while end-users are panicking to transact at any available prices, as price swings in thinning volumes are a sign of a market freezing up.

On Tuesday, implied volatility gauges for lira dollar indicated expected fluctuations - raced to their highest level since Turkey's 2018 currency crisis. On Wednesday, the lira reversed its losses and saw a small pull back in implied volatility, showing that investors are betting on more swings ahead.

The price swings are further exacerbating due to the fact that traders are shying away from large directional bets, which is why the derivative markets have a lack of option liquidity.

Volatility in the lira is unlikely to end soon. The market gauges for longer-term measures of lira volatility suggest traders expect a rocky road ahead. Since 2018, implied volatility indicators have shown their widest gap compared to one-month maturities.