Remain Leery Of The Lira

As we approach Thanksgiving Day in the U.S., here's a Turkey recipe that, well, you can call a recipe for disaster: Take high inflation (around 20%) and mix it with a series of interest rate cuts by a central bank that has shown no independence from its heavy-handed president. Result? A weakening currency.

We are, of course, talking about the country of Turkey. Here at Excalibur Pro, one of the tools that we use to get a sense of longer-term trends is the Markov process. We pay close attention to when the different Markov states cross (regime change) and associated price movement. In the chart of the Turkish Lira, you can see that when State 2 crossed State 1 in late February, in late October and on Nov. 15, big price declines followed. The chart is telling us that there is likely more price declines ahead until we see a reversal of that regime change.