By Saikat Chatterjee and Karin Strohecker
LONDON (Reuters) – The Turkish lira suffered a historic 15% drop on Tuesday in a session of thin trading volumes and declining liquidity, and gauges are showing more astonishing times.
Below are four charts that represent a lira’s individual day trading.
FROM EMURRIA TO PUTTING
The number of trades fell sharply when the pound fell below $ 13.45 on Tuesday, as last week’s data showed. The number of deals peaked during that period, when the lira stood at less than $ 10.
Changes in low-volume prices are a classic sign of a market freeze, as market makers shy away from offering commercial liquidity to trade at available prices while end-users are terrified.
Chart – Lira Trading: https://fingfx.thomsonreuters.com/gfx/mkt/zgpomkxoapd/liratrades.png
Graphic – Lira volumes: https://fingfx.thomsonreuters.com/gfx/mkt/byvrjkwgeve/liravolumes.png
Implied volatility measures of the lira / dollar – indicating expected fluctuations – peaked in Turkey’s 2018 currency crisis on Tuesday. The lira reversed some losses on Wednesday as it saw only a small delay in implied volatility, showing that investors are betting on further changes in the future.
Derivatives markets indicate a lack of liquidity in the option, as traders are moving away from large directional bets, exacerbating price changes.
Chart – Lira volatility: https://fingfx.thomsonreuters.com/gfx/mkt/jnvwexdmavw/Lira%20volatility.JPG
The volatility of the lyre is unlikely to end any time soon. Market gauges for long-term volatility measures of the lira suggest that traders expect a rocky path. One-year implied volatility indicators are showing the largest gap since 2018 compared to one-month maturities.
Graphic – Lira volcurve: https://fingfx.thomsonreuters.com/gfx/mkt/akvezmwbnpr/liravolcurve.JPG
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