Turkish Lira is far from recovery. This is just a quick look at the USDTRY pair. I'm evaluating the recent recovery of the Turkish Lira versus the dollar from about 8.5 TL per dollar to 7.3 TL. In my estimation, this recovery has not shown enough strength to continue. We can see that as soon as it touched the bottom of the drawn curve, RSI has reached the bottom of its parallel channel. That's as far as this recovery will go. In fact, I think the next five years will see the USD appreciate against the TL by 150%, which is exactly as much as it has appreciated during the past five years. This will take it all the way up to 18TL by February 2026.
This signal I consider strong enough to predict a complete reversal of this trend is significant RSI divergence, i.e., a higher high in price coinciding with a lower high in RSI. We have seen one instance of slight RSI divergence shown in the chart which has contributed to a recovery in August 2018 from 7.08 to 5.13 TL. That is 27.5% appreciation for the dollar.
To imagine what a significant RSI divergence would look like, consider the most recent top on 2 Nov 2020. Look at the RSI level on that same day. We're looking for a higher top in price where RSI is significantly lower, ideally within the blue zone. That would be a strong signal for trend reversal.
Another thing to notice is the blue zone and the ascending parallel channel. What's the meaning of the blue zone? When RSI climbs above it, the asset is said to be overbought. It means that price has went up too high too fast without enough real demand backing it up. However, that interpretation really depends on the parameter used. A better, easier and more reliable way to use RSI is to look for RSI divergence like I explained. That becomes even more relevant for this chart when you notice how RSI levels have been steadily climbing in the parallel channel shown. That means that the overbought zone becomes less and less significant as an indication. But it also means that TL recovery phases will be more and more volatile.
