FTSE hits record high, TRY tanks

The FTSE refreshed its record high at the London open, helped along by a cheaper sterling. The FTSE 100 stocks advanced to 7239p, as energy (+0.40%) and mining stocks (+0.77%) led gains at the open.

The GBPUSD plunged to 1.2165 on the back of Brexit concerns. Prime Minister Theresa May said the UK could leave the single market to regain control over immigration. Details will follow in the coming weeks, while the selling pressure on the pound will certainly stay until more details are revealed. The key short-term support is eyed at 1.2080 (post-Oct 7th flash crash support), before the 1.2000 reenters the radar.

China’s Yuan back to 6.9341 against the greenback

Hang Seng (+0.31%) and Shanghai’s Composite (+0.54%) gained slightly. The Yuan extended losses (-0.15%) against the US dollar. Although People’s Bank of China (PBoC) adviser Fan Gang said that further measures to temper capital outflows are likely unnecessary, investors were left unconvinced that pressures would ease. Foreign reserves in China fell to $3010.5 billion in December from $3051.6 billion. The Yuan remains under pressure, although shorting the Yuan remains quite expensive. China’s inflation data due on Tuesday could hint at speedier inflation, especially on the producers’ camp, and hopefully revive the PBoC hawks and reinforce the Yuan. For the moment, the USDCNY is back to 6.9341 from 6.8770 last week, suggesting that the PBoC’s efforts to strengthen the currency may have remained insufficient.

Australia’s export revenues to hit all-time high in 2017

The ASX 200 gained 0.90% and the AUDUSD firmed on news that Australia’s revenues from resource and energy exports could reach a record high of AU$203.9 in 2016/2017, according to Department of Industry and Science. There is solid AUDUSD resistance at 0.7355, if surpassed, could pave the way for a further rise to 0.7370 (50-day moving average) and 0.7385 (major 61.8$% retracement on Dec 13th to Dec 22nd decline). Support is eyed at 0.7287 (Friday’s support & 100-hour moving average) and 0.7243 (200-hour moving average)

Lira hits record low against the US dollar

Frequent terrorist attacks, failure in Syrian strategy, rising social unrest and mounting political pressures as the country aims to change the government regime are weighing on the lira. On Saturday, the AK Party submitted a request to move away from the current parliamentary system and expand the president’s power, if passed, will pave the way for a referendum in the first half of 2017 and could push the country towards greater chaos and further weigh on its currency, which has already lost 40% of its value against the US dollar since March 2016.

Turkish lira hit a record low of 3.6907 amid the industrial production stalled in November; the year-on-year production printed 2.7%, significantly below 3.6% expected by analysts.

Although the USDTRY is approaching the oversold market on daily basis (RSI: 76.80), the capital outflows could continue taking their toll on the lira and the lira denominated assets.

Due on Wednesday, the current account deficit is expected to have widened to $2.75 billion in November from $1.68 billion printed a month earlier.

The situation is alarming. We do not rule out the possibility of a surprise intervention from the Central Bank of Turkey to ease the aggressive sell-off in the lira, especially if the AK Party’s constitutional bill is approved for referendum.