Financial market research and analysis

Turkey voted ‘yes’ to the constitutional change at Sunday’s referendum. According to the official results, 51.4% of Turkish citizens approved to stretch President Erdogan’s influence at the heart of the government. Social unrest and political tensions were again on the menu given the tight gap between the ‘yes’ and ‘no’ camps.

Lira rallied past 2.0% against the US dollar and surged more than 2.5% against the euro on post-election relief before giving back gains into the open in Istanbul. In our Friday’s analysis, we had mentioned that ‘the only fact of having the vote behind could encourage further gains in the Turkish lira.’ Although the knee-jerk rally appears to lose some momentum, the USDTRY could challenge the 3.55/3.50 support in the continuation of the actual momentum. Yet the medium to long-term view remains broadly bearish.

Commerzbank warned that the post-election rally is ‘unlikely to last long’ due to ‘bigger political challenges’. Commerzbank sees the USDTRY back to 3.75 in the coming months.

Indeed, the referendum left Turkey with high political tensions and a decent social unrest. To us, a bearish reversal and a potential sell-off could happen even faster, as Turkey is now facing severe warnings from the EU and rating agencies. In addition, the Central Bank of Turkey (CBT) will certainly be tempted by unorthodox policies, in line with Erdogan’s explicit will for low interest rates.

On the topside, the key USDTRY resistance is eyed at 3.80 and a significant break above this level should suggest a renewed anxiety regarding the Turkish lira, increase the selling pressure and push the USDTRY toward the 4.00 mark.

The Borsa Istanbul index (BIST) gaped higher at Monday’s open and failed to consolidate the post-election relief gains. The index shortly traded down to 90’052, below Friday's close, and bounced back to 90'500 mark. Closed UK, European markets are believed to be source of extra volatility.


AUD gains on Chinese data

Shanghai’s Composite (-0.74%) traded in the red, despite solid macroeconomic data. Chinese GDP growth slowed to 1.3% in the first quarter from 1.7%, yet the emerging market giant recorded 6.9% growth on year-on-year basis, better than 6.8% expected and previously released. Retail sales expanded 10.9% on year to March, versus 9.7% anticipated by analysts. The industrial production picked up 7.6% year-on-year in March from 6.0% expected and 6.3% a month earlier.

Copper futures and the Aussie gained on Chinese data. The AUDUSD extended gains to 0.7594. Light offers are eyed at 0.7610/0.7615 (minor 23.6% retrace on December – March rise / 50-day moving average) before considering a renewed attempt to 0.7700/0.7745 mid-term resistance zone. Support is eyed at 0.7545 (200-day moving average).


Gold consolidates gains, $1300 could be the next stop

Gold advanced to $1295, as the US 10-year yields hit 2.20%. Softer US yields suggest an increasing appetite toward the $1300 level. No option barriers are eyed on the topside. Support is eyed at $1272 (Fib 23.6% retracement on March-April rally).


WTI’s downside correction deepens

WTI crude traded below $53 per barrel, as the US extended production for the 13th consecutive week. Higher US production is jeopardizing the OPEC’s efforts to cut the global supply glut and sustain the prices. The EIA reported that the global oil inventories increased in the first quarter of 2017.

Due to abundance, oil could extend weakness to $52.40 (minor 23.6% retracement on March-April recovery) before the critical $51.40 (major 38.2% retrace). Below this level, the short-term bearish reversal should set the next target to the $50 level.