Too lean is the most likely but it could also be due to timing too retarded. Fuel doesn't all burn in head so it keeps burning in the exhaust.
However, it does sound like you are too lean since richening it seemed to help. My first recomemdation is to time it using the flywheel since it should be more accurate than most people's ear method.
Make sure your frequency valve is buzzing if you have the newer FI. I don't think the 1.6's came with the O2 loop though. You can probably enrich the mixture by insulating your warm up regulator. Take it off the motor and insulate it from the engine bay heat which will keep the mixture richer until the regulator heats up.
Joe Craven
71 ITB Capri
72 ITA Capri
77 GTI Cup
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