"USD/TRY has been trading sideways since March 7 following its rally from the year-to-date low set in January. This period of consolidation is likely to resolve in the coming days," Rabobank's EM FX Strategist Piotr Matys notes.

Key quotes

"Given that the preceding short-term trend was bullish, the odds favour a break higher in USD/TRY towards 5.575 – the upper boundary of the wider range has been in place since November. In terms of a potential catalyst for a bullish breakout, market concerns ahead of local elections scheduled on March 31 could escalate if the administration announces more fiscal measures."

"The relationship between the US and Turkey could be another source of worries for investors. Earlier this month the US warned of “grave consequences” if Turkey proceeds with its decision to purchase the Russian S-400 missile defence system. Yet another diplomatic spat could seriously undermine the still fragile sentiment towards the lira. A rise in risk aversion is an obvious potential
external trigger."

"We have to be mindful that a break lower in USD/TRY from its consolidating phase cannot be excluded. Under such a bearish scenario the pair could revisit the lower boundary of its multimonth range. That said, the odds to our mind are skewed in favour of USD/TRY breaking higher."