USD/TRY struggles to justify the strongest risk reversal in two months around 18.25

USD/TRY licks its wounds around 18.22 during the early Tuesday morning in Europe, after falling the most in a month the previous day. In doing so, the Turkish lira (TRY) pair takes clues from the hawkish signals of the options market.

That said, one-month risk reversal (RR) on USD/TRY, a measure of the spread between call and put prices, rose the most since July 11 on Monday, after witnessing three consecutive weekly downsides. It should be noted that the daily and weekly RR are at 1.855 at the latest, per the Reuters options data.

A call option gives the holder the right but not the obligation to buy the underlying asset at a predetermined price on or before a specific date. A put option represents a right to sell. 

It’s worth noting that the inflation woes in Turkiye appear to be the major bullish catalyst for the USD/TRY pair. However, the cautious mood ahead of today’s US Consumer Price Index (CPI) seems to test the pair bulls of late.