Turkey's ruling party begins the task of forming a new government after Prime Minister Erdogan's outright victory in the presidential election. The result raises questions about the direction of the country, says Jeremy Stretch, Head of FX strategy at CIBC.

SHOWS: LONDON, ENGLAND, UK (REUTERS - ACCESS ALL) (AUGUST 11, 2014)

1. CIBC, HEAD OF FX STRATEGY, JEREMY STRETCH, SAYING:

JOURNALIST ASKING JEREMY STRETCH: 'What is your outlook for the Turkish lira? I know certain things are the current account, the large current account in Turkey are an issue, where do we go from here?'

JEREMY STRETCH: 'Yes, you're absolutely right. The current account deficit does continue to be a little bit of a millstone around the Turkish Lira's neck because of course, whenever we do get instability globally and of course, geopolitical risk has been relatively larger over recent sessions, then that really causes the Turkish lira some concerns. Now, we're seeing a little bit of a relief rally. Obviously, the political angle is improving or at least some of that uncertainty has been cleared away by the election victory a bit of course and now begs the question of who leads the AKP and who's going to be in charge of policy. So that perhaps brings us another question and of course, we've seen that improvement in geopolitical risk after that uncertainty on Friday which is also playing out in the Turkish lira and boosting that currency. The question is, 2.12/2.15 I think is an obvious target in the shorter term. It's one of the key moving averages but the question is, would you necessarily want to continue to buy Turkey there and I think there are still enough question marks particularly in terms of who's going to lead the party after Erdogan resigns the leadership to suggest that at those sort of level, it's probably an opportunity just to lighten some short term Turkish positions because of course, geopolitical risks are these but have not, not been totally eradicated by a ceasefire in Gaza or any market-reduced fears post-Iraq.'

JOURNALIST: 'All right. Let me ask you about that. You say geopolitics has eased somewhat. We've got Russia retaliating against western sanctions, Iraq teetering on the edge. Gaza and Libya a little bit better but how soon is it before all these crises come together and really derail the markets and derail economies? Could this be a tipping point now?'

JEREMY STRETCH: 'Well, it can be a tipping point. And certainly, the market was very nervous at this sort of nexus of risk factors on Friday and of course that culminated in the Nikkei getting hit very hard and going through some key technical levels as a barometer if you like of that focus. But I think the good news from the market perspective was that it didn't stem through into U.S. equity trading. We didn't see the VIX exploding on Friday. So I think there's an ongoing uncertainty about these particular risk factors. Whether they're going to combine in a sort of a real, sort of accelerated fashion I think we should be relatively careful about, and I guess the key thing from the market perspective whether we will see some degree of uncertainty in terms of the oil price for example, that will be another catalyst for potentially impacting the geopolitical scenario and start to derail what should still be a reasonably constructive end of year particularly for a U.S. led global recovery.'