Karin Strohecker, Saikat Chatterjee

LONDON, (Reuters) – The Turkish lira fell 15% on Tuesday. This was in a session that saw low trading volumes and dwindling liquidity. It is now looking more uncertain.

Here are four charts that show trading during a pivotal day in the history of the lira.

FROM FLOWS TO TRICKLES

Data from the last week revealed that trades decreased dramatically after the lira fell to a record low of 13.45 against the dollar on Tuesday. The peak in terms of transactions was during the period that the lira peaked at less than 10 per dollar.

Thinning volumes and price swings indicate a market that is experiencing a freeze-up. Market makers are reluctant to offer trading liquidity, while the end users are desperate for transactions at all prices.

Graphic – Lira trades: https://fingfx.thomsonreuters.com/gfx/mkt/zgpomkxoapd/liratrades.png

Graphic – Lira Volumes: https://fingfx.thomsonreuters.com/gfx/mkt/byvrjkwgeve/liravolumes.png

SOARING VOL

The implied volatility gauges for the lira/dollar, which indicate expected fluctuations ahead, raced up to Tuesday’s highest point since Turkey’s 2018 currency crisis. A small amount of implied volatility was restored by the lira on Wednesday, indicating that investors believe there will be more swings.

A lack of options liquidity in derivative markets is further exacerbated by the fact that traders shy away from placing large, directional bets.

Graphic – Lira volatility: https://fingfx.thomsonreuters.com/gfx/mkt/jnvwexdmavw/Lira%20volatility.JPG

WIDENING GAPE

The volatility in the lira will not end anytime soon. The market gauges of longer-term lira volatility indicate that traders are expecting a bumpy road. One-month maturities show a wider gap than one-year implied volatility indicators, which is the biggest since 2018.

Graphic – Lira volcurve: https://fingfx.thomsonreuters.com/gfx/mkt/akvezmwbnpr/liravolcurve.JPG