Turkey

Taking a Shot at Turkey

Small position.

TUR ETF Down 12pc

Based on the indicated value, the Turkey ETF should drop around 12 percent at the open.

ZH: Turkey Stock Trading Halted By Circuitbreaker For Second Day Amid Margin Call "Panic Selling"

There Are No Coincidences: Turkey Fires Warning Shot to Global Markets

Back in 2015, I posted Geopolitical Forecasting Through Technical Analysis: Is Turkey About to Destabilize the Middle East?. I saw a topping pattern with a very low potential target. Combined with domestic politics, economy and regional instability, it looked like the stars were aligning for a very negative outcome.

All of which is to say, I can see the Turkey ETF (TUR) hitting single digits solely through currency depreciation and financial crisis. There's enough fuel there for it. However, geopolitical developments concern because they are likely to deteriorate along with the economy. If the chart is correct, economics and politics are going to get much worse for Turkey in the months ahead. Of course, the chart might reverse and the pattern may break, making a short of TUR a bad trade and a forecast of instability a wrong one. If it doesn't, Turkey may quickly become the new center of attention in the Middle East.

It took longer than I expected. The deterioration was slower, and then now it is going all at once. The credit bubble kept expanding, Erdogan's accumulation of power didn't create extreme damage right away. The Trump administration did not reorient foreign policy in the Middle East and the EU ruling class enabled the migration crisis instead of confronting it, both of which delayed a potential break with Turkey.

Back then I was look at this topping pattern.

I said the target was the single digits. The chart hasn't made it that far yet, but support right now is around $16.50 and below that there is the 2008 low around $13 per share.

The best way to play Turkey's collapse was not the stock market, but the currency:

Reuters: Lira collapse leaves Turks bewildered, opposition angry

Anxious Turks struggled to keep up with a bewildering collapse in their currency and the main opposition party leader said the country was experiencing its darkest "catastrophe" as the lira slumped 15% on Tuesday against the dollar.

Tuesday's meltdown follows weeks of steep falls in the lira which have already driven up prices, leaving ordinary Turks reconsidering everything from their holiday plans to weekly grocery shopping.

"There has not been such a catastrophe in the history of the Republic," said Kemal Kilicdaroglu, leader of the opposition Republican People's Party, blaming the currency freefall on President Tayyip Erdogan who has led the country since 2003.

"At this point, you are a fundamental national security problem for the Republic of Turkey," Kilicdaroglu said.

The collapse in Turkey's currency is a geopolitical problem. As the largest economy in the Middle East with ties to European banks, and as a key player in regional security, the fallout from the collapsing lira hasn't really hit the region yet. But it will.

European banks have been lightening exposure to Turkey over the years. European banks feel the heat as Turkey's currency plunges

Shares in Spain's BBVA (BBVA.MC) fell 1.2%, to a two-month low, with the bank seen as the most exposed to Turkey.

BNP Paribas (BNPP.PA) of France and Dutch bank ING Groep (INGA.AS) also do business in Turkey and may be hit by a slump in its currency. Italy's UniCredit (CRDI.MI) is in the process of exiting the country. Spanish banks have by far the largest loan exposure to Turkey among Western lenders at nearly $63 billion, followed by banks in France, Germany, Britain, United States, Japan and Italy, data from the Bank for International Settlements (BIS) shows.

Europe has its own problems besides Turkey. Here's a thinly traded ETF of European financials. It looks ready for another vertical move lower.

I still believe Turkey will eventually be kicked out of or leave the EU and NATO, should NATO continue to exist at all. The exit by European banks is one piece of a big puzzle that will eventually erode support for Turkey on the continent. If I am wrong, perhaps there are enough Kemalists left who will turn the country back towards the West. As the country destabilizes, prediction become more difficult because the probability of outlier events rises.

For global markets, the collapse of the lira seems far away because it doesn't immediately impact on global markets. However, the question must be asked: why now? Turkey has been doing the same things for years, why did the lira collapse now? Perhaps it is global pressures that pushed Turkey over the edge again. Central planning looks good when times are good. Global and even local macroeconomic forces can overcome bad policy for years on end. Every commodity cycle, there are examples of a resource boom overcoming all but the worst governments. When the positive external forces reverse, then the reality of the underlying economic destruction is revealed all at once. It is no different with Madoff and Enron. As long as the prices that mattered were rising, no one was the wiser. Only a few prescient analysts who dug into the numbers were aware of the real weakness.

Let's look to the past for Turkey. The last time the Turkish lira experienced a collapse similar to the current one was in 2018. On the chart above, USDTRY climbs into the rainbow for the first time. The vertical move was a four- or five-month affair depending on where you mark the start of the move. The lira bottomed out (USDTRY topped in the chart) in August 2018. Back then the Chinese economy was slowing, the global economy was slowing, the Federal Reserve was tightening with QT, the U.S. dollar was rising and then global markets began selling off in late September. Here is the euro to give evidence of the stronger dollar:

Another Look at the Dollar Index

The stochastic indicator has entered the bullzone. Previously this has marked the end of a short-term rally or the start of a major bull move. Volume hasn't picked up yet, but it fell during the 2018 to 2020 rally. If volume picks up...well let's just say everyone betting on stocks, to commodities, to cryptocurrency and against the dollar itself, are all short the greenback in one form or another. The asset on the other side of the all-one-market ledger is King Dollar. Click the UUP tag for recent posts on the ETF.

As for pain, Turkey is again the leading indicator for emerging market trouble. There are local reasons why TRY is sliding, but as the Middle East's largest economy those effects will not be contained for long.

Back to the dollar, the bear makret is in danger of being invalidated. The Dollar Index never sustainably recovered its 5-year moving average in the prior two bear markets.

Turkey and the West Still Diverging

Way back in 2015 I posted Geopolitical Forecasting Through Technical Analysis: Is Turkey About to Destabilize the Middle East?. The main premise was simple: does a very alrge bearish pattern portend negative geopolitical events? I argued yes, and since then it's been filling in the dots.

ZH: Biden About To Declare US Recognition Of Armenian Genocide, Enraging Turkey

It's long been a Turkish 'red line' for which all the country's recent modern leaders have reacted fiercely at the mere suggestion, and which only thirty countries in the world officially acknowledge. It's being widely reported that President Joe Biden is preparing to declare the formal US recognition of the Armenian genocide, which was the mass systematic killing of over one million Armenians in Asia Minor from 1915-1917 at the end of the Ottoman Empire. Hundreds of thousands of Greek and Assyrian Christians were also slaughtered in the name of achieving 'Turkification'.

According to CNN on Thursday, "Two people familiar with the decision said the President was expected to make the declaration as part of an official statement on Remembrance Day, which falls on Saturday. Both said it was possible he would change his mind before then, and issue a statement merely recognizing the event without describing it as genocide."

Turkey is a great example of one of the main themes of this blog, that beng social mood and how negative mood exposes all the faultlines between peoples. The United States is entering a low level race war as diversity's problems are exposed. Turkey and the West have multiple fault lines ranging from religion to geopolitical goals. Kemalist Turkey made sense as a U.S. ally against the Soviet Union. Islamizing Turkey doesn't make much sense as an ally against radical Islamd, particularly when it ends up supporting ISIS. Of course, depending on who is in power in the U.S., supoprting ISIS might be seen as a good thing. President Trump seemed to flirt with the idea of siding with Russia and Assad against terrorists though, and without the false Russiagate narrative and the fake chemical attack blamed on Assad, it's possible Trump would have radically altered U.S. foreign policy vis-a-vis Russia and the Middle East at least on one problem. He would not have done too much given his support for Israel and the latter's support for radical Islamic groups that are "the enemy of my enemy."

Additionally, Turkey has also angered the U.S. by buying Russian weapons systems. It seems like no matter which way the West goes, Turkey finds itself in conflict. I still expect it will eventually be expelled or voluntarily leave Western organizations such as NATO. Economic troubles, including the fallout from rapid monetary expansion, has battered the currency. Turkey's revolving door of central bank chiefs whipsaws markets. Flight from the Turkish lira has led it to take action against Bitcoin. It doesn't say that is the reason, nor did China when it banned cyrptocurency exchanges amid downward pressure on the yuan and worries over capital flight.

As for the chart, the Turkey ETF emains in a downtend. When viewed in context with USDTRY, it takes on a bearish aura.

Toasty Turkey

Several years ago I highlighted Turkey as a potential geopolitical hotspot because its long-term chart showed potential for an extreme decline. See: Geopolitical Forecasting Through Technical Analysis: Is Turkey About to Destabilize the Middle East?. Since then things have proceeded in that direction. The currency has done most of the work in terms of financial damage, while the government has ratcheded up tension with its neighbors, the EU, Russia and the USA.

Saudi Arabia is the latest country to join a growing list of countries with boycotts on Turkish exports. ZH: Spike In Boycotts Of Turkish Goods And Services

According to the Boycott-Turkey.org and Boycott-Turkey.net campaign (websites hijacked – this is a partial mirror site), “probably one of the most powerful weapons individuals have to effect political change is their consumer purchasing power.”

For years, Turkey has injected itself, often militarily, into the sovereign affairs of Iraq, Syria, Lebanon, Libya, Greece, Cyprus, India, and now, Armenia and Artsakh. On October 2, reports emerged that Turkey is using NATO and American facilities to attack Armenia and Artsakh. Since NATO is unable or unwilling to rein in this rogue nation that many consider to be the single greatest threat to global security, public boycotts are increasingly gaining favor.

Against the backdrop of war, public disapproval for Turkish-made goods has intensified in Armenia again. Armenians recognize that Turkey’s involvement in this war will allow it to complete the Armenian Genocide.

The Republic of Armenia announced on October 1 that its supermarkets will no longer carry Turkish products. Merchants and importers are choosing other trade partners. Since the renewed attacks on Armenia, communities in the Armenian Diaspora have also seen a resurgence in Turkish products and services boycotts.

...At the end of September, Saudi Arabia announced a ban on all Turkish goods. The Saudi Kingdom has been at loggerheads with Turkey over the contested murder of exiled Saudi journalist Jamal Khashoggi and the status of the Qatar peninsula.

According to the Turkish newspaper Dunya, the Saudi government has ordered individual businesses not to trade with Turkish companies or buy any products made in Turkey, and has imposed fines on companies that do not comply.

A Turkish boycott campaign in also in effect in Egypt. In January of this year, MP Ismail Nasr El-Din called on the government to impose a boycott of Turkish products, services and tourism “in response to the blatant transgressions by the Turkish government in the region, and its attempts to plunder the wealth of the Middle East, spread chaos, and destabilize the Middle East.” MP Omar Sumaida, head of the Congress Party, said “we launched a campaign to boycott Turkish products, and our party has developed plans to educate citizens to boycott Turkish products in all offices affiliated with the party across the country.” As early as 2013, a number of Egyptian TV channels stopped airing Turkish soap operas and dramas, to protest Turkish intervention in the Middle East.

These popular boycotts intensify the existing Arab League boycott. Many Arab countries cannot afford the high cost of retaliating militarily to Turkey’s incursion into northern Syria, and so are opting for economic sanctions as defense. “An Arab boycott of Turkish products would significantly hurt Ankara’s economy. Turkish exports to the Arab world total more than $30 billion annually, representing 18.3% of its overall exports, according to the trade data website, Trade Map.

There are layers to geopolitics that prevent cooperation between countries with similar interests, but sometimes interests align when everyone decides that a given regime's time is up. I don't know if that is the case with Turkey, but clearly it is boxing itself into an ever smaller geopolitical corner. I do not think a war is coming, but it is possible that various nations make these boycotts a semi-permanent policy. Anti-Turkish interests in the European Union and the United States, including the Armenian diaspora, will ramp up their activities. If these find footing, anti-Erdogan propaganda will increase from parties who favor Turkey.

Turkey sits at a nexus between Russia, the West and Islam. This is an asset when regional powers and neigboring countries aren't aligned because any nation desiring stability will avoid upsetting the balance. When all your neighbors and the great powers are on a similar page however...that's when semi-permanent economic boycotts can turn a nation into a pariah state.

There is no resistance for USDTRY. TUR is off its $17.60 low, but the chart still looks bearish here. How do you solve a problem like Erdogan? His regime has managed the currency poorly. Outside interests don't need to push the Turkish lira over the edge, it's already falling. Enemies don't need to apply pressure, at this point they only need not offer support when the time comes.

Geopolitical Risk: Turkey

The Moscow Times: Russia-Turkey Tensions in Syria, Explained

What happened?

— The Turkish defense ministry said two of its soldiers were killed and five were wounded in Syrian government airstrikes in Idlib, bringing Turkish military fatalities in the region to 15 this month. It said more than 50 Syrian soldiers were killed in retaliation.

— Russia for the first time publicly accused Turkey of supporting terrorist fighters in Syria. The Russian Defense Ministry said Turkey provided artillery support to the militants, wounding four Syrian soldiers.

— Russian warplanes attacked the militants who had burst through government positions in two areas of Idlib, allowing the Syrian army to repel them, the Russian ministry said. Turkey said Syrian planes had carried out the airstrikes.

— Nearly 1 million people — most of them women and children — have fled the fighting to seek sanctuary in the border area. Russia’s military said Friday there is no photographic proof of the refugees’ existence.

Al Jazeera: Fighting rages in northwest Syria; two Turkish troops killed

Turkey's Communications Director Fahrettin Altun said the soldiers - who were in Idlib to "establish peace and manage humanitarian aid operations" - were killed by "an attack carried out by the [Syrian] regime".

Earlier this month, 13 Turkish soldiers were killed in Syrian attacks, prompting Erdogan to say Turkey will attack Syrian forces "anywhere" in Syria if another soldier was hurt.

In a statement, the defence ministry said five tanks, two armoured personnel carriers, two armoured trucks and one howitzer were also destroyed in retaliation.

The UK-based Syrian Observatory for Human Rights war monitor said at least 11 pro-government fighters and 14 on the pro-Turkey side were killed along with the two Turkish troops.

Russia - Syrian President Bashar al-Assad's main ally - accused Turkey on Thursday of providing artillery support to rebels fighting Syrian government forces, and said fighters briefly broke through government defences in Idlib, Russian news agencies reported.

Turkey is Toast 2019 Edition

I identified Turkey as a potential geopolitical hotspot given a bearish chart pattern several years ago. Things have not been going well for Turkey or its currency in the interim. I speculated that a completion of the bearish pattern would point to extreme events, either currency collapse or possibly Turkey being ejected from NATO. The latter is now openly discussed in Washington, DC.

NI: Sorry, Lindsey Graham: America Can't Kick Turkey Out of NATO Unilaterally
TAC: Time to Kick the Islamizing Turkey Out of NATO

Canaries Dropping Against Dollar ARS,TRY,ZAR,BRL

Bloomberg: Zimbabwe’s Dollar Squeeze Worsens

Zimbabwe’s attempt to ease a dollar shortage and stop its currency from plunging in the black market is showing little sign of working.

The southern African nation’s currency, known as the RTGS$, fell to 4.2 per U.S. dollar Wednesday, its weakest level in more than five months, according to marketwatch.co.zw, a website run by analysts in Harare. That took its decline in March to 18 percent.

FT: Turkish officials just can't stop the lira's slide

And just like that, Turkey's currency has declined nearly 5 per cent against the dollar. The sell-off comes less than 24 hours after it cracked down on short-sellers by pushing the rate to borrow offshore liras overnight past 1,000 per cent. The rate settled around 750 per cent by end of day yesterday, and now sits at 32 per cent.

Today's catalyst: the $10bn drop in the country's foreign reserves last week, as Turkish officials desperately try to prop up the currency ahead of local elections on Sunday. That's a nearly 30 per cent drop from previous levels and brings reserves to just shy of $25bn.

The British pound slipped on Brexit news again and that spilled into euro today, both benefiting the U.S. dollar, but the usual suspects have been weakening for longer.

Turkey Is Toast 2019

Back in 2015 I wrote Geopolitical Forecasting Through Technical Analysis: Is Turkey About to Destabilize the Middle East?

If socionomic theory has some validity and technical analysis has some validity, then one can presumably spot potential geopolitical shifts by looking at major assets such as currencies and national stock markets. iShares MSCI Turkey (TUR) gives exposure to both Turkey and by extension, the Turkish lira. Back in 2015, TUR sported a major head-and-shoulders pattern indicating a target in the single digits from its then current price of $37 per share. Geopolitical and domestic political events deteriorated. President Erdogan has been turning the country into an Islamic state and Islamic states tend to underperform economically. Secular Turkey was a Middle East standout because of its economic success without oil. Islamic Turkey? Maybe yes, but the risks were and are increasing. Erdogan also consolidated power. Tensions with Greece escalated. Tensions with NATO escalated. Tensions with Russia escalated. President Trump, ISIS, possible detente with Russia (din't happen), NATO reform, nationalism rising in Europe, it all pointed and most still points in a negative direction for Turkey.

Turkey would bottom in 2016 and then rally withe emerging markets into the January 2018 global top. It then went on to lose more than 50 percent into a July 2018 low. That uptrend is broken and as of pre-market trading today, TUR is back below the descending support line that stretches back to 2010.

ZH: Turkey On Verge Of Collapse As Overnight Swaps Hit 700%, CDS Soar

It also means that Turkey is doing its best to burn bridges with all foreign investors, both bulls and bears, which for a country that for the past decade has been entirely reliant on outside capital inflows, could spell a death sentence.

Meanwhile, unable to express their negative views on the economy via the currency - for now - Turkey bears have found a different way of betting on a Turkish economy implosion, namely Credit Default Swap, which soared to 454bps on Tuesday, a 40bps spike, and the highest since last summer's crisis.

Of course, Eedogan's vendetta against the shorts, and the elimination of virtually all liquidity just to force an FX squeeze, means that the broader economic slowdown and raging inflation, which is the true reason behind Turkey's simmering crisis, is about to get much worse. Meanwhile, with local banks burning through reserves to defend the currency on the front-end, and with shorts no longer present, it is only a matter of time before the currency collapses once more, only this time driven not by a flood of shorts but as longs capitulate ahead of what increasingly looks like another Turkish crisis.

Prior Turkey posts here.

The Turkish Lira Is Toasted, Next Turkey?

Back in August 2015 I wrote Geopolitical Forecasting Through Technical Analysis: Is Turkey About to Destabilize the Middle East?

It was based on fundamentals in Turkey and also the chart of iShares MSCI Turkey ETF (TUR) I was very early, and I was somewhat off in 2016 with 2016 Will Be A Bad Year for Turkey and 2016 Forecast: Turkey Collapses and 2017 Will Be Worse for Turkey. The currency depreciated throughout this period, but TUR held up.

That said, while I am almost always a few years early with my calls, I stuck with a negative outlook on Turkey because nothing improved, not even the charts. As I wrote in the 2017 post:

The head-and-shoulders pattern of TUR has a target price in the low single-digits, a more than 90 percent drop from current levels. Given the price target, Turkey's increasingly religious government, Europe's growing nationalism, the United States potentially warming relations with Russia and Turkey's conflict with Russia, the geopolitical forecast points to Turkey potentially losing NATO membership. Or de facto loss of membership if NATO refuses to defend Turkey from Russian attack because it fingers Turkey as the aggressor. It's also possible the West could enact economic sanctions and send the Turkish lira into a death spiral.

It appears Trump has done that with his sanctions on Turkey, the final backbreaking straw for the market.

Potential wildcards moving forward include a flood of migrants into Europe. Turkey has 3.5 million refugees and already threatened to let them out. Sweden votes on September 9 and some polls already have Sweden Democrats as the largest party in Sweden. Reflexivity is working in politics too.

All Turkey posts.

Turkey Violates Greek Airspace 56 Times

Who says you can't go back to Constantinople?

ZH: Turkish Fighter Jets Violate Greek Airspace 56 Times In A Single Day

This is played down as a squabble between NATO allies, but Turkey and the EU are moving in opposite directions politically. Turkey is shifting in a more Islamic direction and Europe in a more nationalist direction. Europe's establishment has seeded Europe with jihadist, Europe's establishment is slowly being replaced.

This is the most dangerous flash point in Europe. And since Turkey is toast, lashing out with a military strike and appeal to wider Islam makes sense.

Turkey Plug Being Pulled From EM Bathtub

AFP: Turkey lira 'in freefall', eyes on central bank

Turkey's embattled lira on Wednesday lost over 3.5 percent in value to hit new historic lows against the US dollar, as markets watched to see if the central bank will take emergency action to buttress the currency.

Following sharp losses on Tuesday, the lira continued to underperform all other emerging market currencies, after suffering a hammering in Asian trade overnight when Japanese investors sold Turkish assets.

Wolf Street: Which European Bank is Most Exposed to Fallout in Turkey?

Like Spain’s biggest bank, Santander, BBVA has spent the last five years doubling down on its emerging economy bets, even as two of their biggest markets, Brazil and Turkey, have heated up politically and slowed economically.

Santander: TURKEY: FOREIGN INVESTMENT

After reaching a record high (USD 22 billion) in 2007, FDI flows to Turkey have decreased. FDI reached USD 13.3 billion in 2016 and dropped to USD 10.8 billion in 2017 according to Turkish Ministry of Economy (2018).The factors hindering FDI development include political instability (an attempted coup d'état took place in 2016 claiming many lives), the weak currency, inflation, the proximity to conflicts in the Middle East as well as administrative measures taken against the Gulenists for their alleged implication in the coup. Turkey is ranked 60th out of 190 economies by the World Bank in its Doing Business 2018 report (same ranking as in 2017).

EU member states are by the largest group of investors (67.9% of total investment in 2017) in Turkey

Turkey Still Headed to "Zero"

Turkey In Trouble Again, Back Below Neckline

Bloomberg: Germany Tightens the Screws on International Funds to Turkey

Germany is actively working to cut funding to Turkey from the country’s state-owned KfW bank, the European Investment Bank and the European Bank for Reconstruction and Development, according to more than a dozen government and banking officials, who asked not to be identified discussing the behind-the-scenes efforts. Some German commercial banks are also reviewing their exposure to Turkey, the officials said.

While none of the institutions or banks have put in place a formal freeze on funding, they’ve all imposed tighter restrictions, the people said. The increased scrutiny especially affects financing for companies seen as being tied to or influenced by the Turkish government, they said.

The reduction in exposure to Turkey comes amid deteriorating relations between the two governments, with German Chancellor Angela Merkel announcing last week that she will seek to curtail the European Union’s pre-accession funding for Turkey.

Turkey not only won't join the EU, it is on course to leave NATO given the current trajectory in social mood and political developments in both Turkey and Europe. The stock chart of iShares MSCI Turkey (TUR) is also back below the H&S neckline, with a target in the single digits. The latest move is driven by currency markets; the dollar gained another 1.6 percent versus the lira today.

Click on the Turkey tag for prior coverage.

Turkish Lira Tumbles After Diplomatic Spat with USA

ZH: Turkish Lira Crashes 4%, Biggest Drop Since "Failed Coup" Following Visa Suspension Drama

With tensions between Turkey and the US escalating dramatically and unexpectedly in the past few days, when first Turkish police on Wednesday arrested a local employee of the US embassy in Istanbul and charged him with espionage and an attempt to overthrow the government, which was following on Sunday afternoon by the US embassy in Turkey announcing that "effective immediately" it has
"suspended all non-immigrant visa services at all U.S. diplomatic facilities in Turkey"...

I have written about Turkey several times in the past couple of years.

Some posts include:

Geopolitical Forecasting Through Technical Analysis: Is Turkey About to Destabilize the Middle East?
2016 Forecast: Turkey Collapses
Turkey Edges Closer to Chaos
Erdoganomics Will Run Turkey Now
2017 Will Be Worse for Turkey

I predicted conflict with the United States and Europe, and that is what has unfolded. Before this spat with the U.S., Germany pulled out of Turkey in June.

NYTimes: Germany to Withdraw Forces From Incirlik Base in Turkey

Back in March, it was a diplomatic spat over domestic European politics.

CNN: Tensions rising between Turkish, European leaders before elections

Turkey is on a path to leaving NATO and being shut out of Europe. The H&S pattern is about to breakdown.

2017 Picks: A Mixed Bag

At the end of 2016 I made a few predictions for 2017.

I thought Turkey and Mexico (TUR and EWW) would decline. I missed the broader emerging market trend and the extent to which the U.S. dollar would correct, although in Turkey's case, the rally is almost entirely driven by equities, not currency.

I thought FCG was a good speculation at the end of 2016 considering it was very cheap relative to the energy sector. I thought it would at least perform no worse than energy, but it underperformed again. Still, it did not hit a new relative low versus SPDR Energy (XLE). FCG's relative low was achieved in early 2016. I still like it as a relative bet on energy for anyone who is bullish on energy. I make no call on the overall energy sector; I currently own November puts on SPDR Energy Exploration & Production (XOP).

I was right on the solar (TAN) call. And the Chinese yuan.

In the near term, the Chinese yuan looks a little oversold. I expect a bit of a rally after it cracks 7, even better if it rallies before since it will catch the bears. A 3 percent rally takes USDCNY to about 6.75, a 5 percent rally to 6.60. The PBoC has given bears nice entry points before, hopefully they provide another one. I don't think USDCNY will be the best currency play.

It ran all the way to USDCNY 6.48 on September 8. On September 10, I wrote: Time to Short the Yuan? USDCNY hit 6.62 today.

Kurds Vote on Independence

More bad news for Turkey.

CNN: Iraqi Kurds cast their votes in historic referendum

Iraqi Kurds have started casting their ballots in a controversial independence referendum Monday as tensions between Iraq's largest ethnic minority and the Iraqi government in Baghdad intensified.

Voting got underway at 8 a.m. local time (1 a.m. ET) and will end at 6 p.m. local time (10 a.m. ET). The first results should be known within 72 hours.

...Both Iran and Turkey have sizable Kurdish minorities and fear a vote for independence in Iraq might galvanize movements in their countries.

One of the more realpolitik solutions for Islamic terror was to blow up the entire Middle East via Kurdish independence, forcing jihadists to fight internally.

TUR broke out of the head-and-shoulders pattern, but it remains in a downtrend. I expect the rally in 2017 will prove to be a headfake.

Western Support For Turkey Weakens

Back in August 2015, I first started looking at Turkey as a potential geopolitical hotspot in Geopolitical Forecasting Through Technical Analysis: Is Turkey About to Destabilize the Middle East?

In the next year, there was a failed military coup (or a false flag designed to consolidate power?). Donald Trump won the 2016 Presidential Election in the United States, threatening to revamp the NATO alliance and improve relations with Russia. These changes appear less likely three months into his presidency, but as long as they remain a possibility, Turkey is among the nations likely to suffer the most.

Turkey hasn't helped itself either. In 2017, relations with the West further deteriorated after Turkish President Erdogan's ministers were denied permission to campaign in Europe. He had previously used migrant flows as a stick against Europe, and this escalated when he threatened widespread Islamic Jihad against Europeans:

“If Europe continues this way, no European in any part of the world can walk safely on the streets,” Mr Erdogan told journalists in Ankara.

This weekend, he won wider powers in a referendum vote that was criticized by the Western establishment even before claims of voting irregularities:

What's in the new constitution?
The president will have a five-year tenure, for a maximum of two terms
The president will be able to directly appoint top public officials, including ministers and one or several vice-presidents
The job of prime minister will be scrapped
The president will have power to intervene in the judiciary, which Mr Erdogan has accused of being influenced by Fethullah Gulen, the Pennsylvania-based preacher he blames for the failed coup in July
The president will decide whether or not impose a state of emergency

Mr Erdogan says the changes are needed to address Turkey's security challenges after last July's attempted coup, and to avoid the fragile coalition governments of the past.
The new system, he argues, will resemble those in France and the US and will bring calm in a time of turmoil marked by a Kurdish insurgency, Islamist militancy and conflict in neighbouring Syria, which has led to a huge refugee influx.

Critics of the changes fear the move will make the president's position too powerful, arguing that it amounts to one-man rule, without the checks and balances of other presidential systems such as those in France and the US.

The Russians see an opening: Is America's Alliance with Turkey Doomed?

The sixty-year period between the Crimean War of 1853–56 and the July Crisis of 1914 resembles the era that opened with the admission of Turkey into NATO in 1952 and appears to be ending today. As the Anglo-Ottoman case warns, alliances formed in response to an external threat between powers that view each other as cultural “others” may deteriorate after the threat diminishes. Suffering from such alliance fatigue, erstwhile partners become clashing rivals.

...American dislike of Erdogan’s behavior is reminiscent of the British abhorrence of Abdülhamid II, who defended the rights of Muslims as their spiritual leader. These developments have relegated Turkey from a praiseworthy defender of Western civilization and democracy to an “other” representing Islam and autocracy. Conversely, according to Turkish public perception, the United States has become a wolf in sheep’s clothing: a superpower silently plotting to partition Turkey.

...The lesson for the United States is clear: unless Turkey feels desperate, it will not ally with non-Western powers, including Russia. Some Turkish politicians are today feeling desperate and have favored rapprochement with Russia, Iran and China. Erdo?an, in 2013, publicly expressed interest in transitioning from a Dialogue Partner of the Shanghai Cooperation Organization to a full member. But even if Turkey changes sides, it will not last long unless its traditional allies abandon it permanently, which would be extremely unlikely.

The U.S.-Turkey alliance, originally forged because of a common external threat, has become exceedingly fragile since the fall of the Soviet Union. Both states criticize each other rather than sweep aside their differences. More troublingly, they harbor mutual mistrust, which colors their perceptions of each other. While it is difficult to predict the future of the U.S.-Turkey alliance, it has clearly suffered from severe alliance fatigue and needs extensive restoration. Resuscitating the relationship will demand investment and concessions from both parties.

There is a lot of history in the long piece. The main reason for the break with the West is the post-Cold War shift to a clash of civilizations. Turkey is becoming more Islamic and Erdogan will accelerate the end of Turkish secularism. At the same time, rising European leaders are shifting their view on Islamic immigration and relations with Turkey. It isn't hard to imagine a chain of events that could eventually lead to mass repatriation of Turks from Germany. It isn't very probable, but a path that did not exist before is now visible. Meanwhile, the latest power grab also has the Western establishment souring on Erdogan: TURKEY’S VOTE MAKES ERDOĞAN EFFECTIVELY A DICTATOR

The chart on Turkey remains the same, a massive head-and-shoulders pattern. While everyone is focused on politics, few are talking about Erdogan's horrible economic policies. Although political volatility is rising, if TUR collapses, it will most likely be the result of a debt and currency crisis. That will then provide the fuel for a potential breakdown in relations with the West.