FxWirePro: Long term outlook - China’s trouble could push EuroStxx50 to 1500

Yet another outrageous (if you consider it so) call from us at FxWirePro. Last week we issued another call suggesting Yen could reach as low as 98 per Dollar.

Even if the call feels outrageous, we feel there are ample reasons to believe that this level or at least area around it could easily be reached under the following circumstance.

• Like many other blogs and analysts, we have been pointing to China's debt mountain, which is by some measure is around 280% of GDP. Corporate debt alone amounts to $17.3 trillion as of second quarter of 2015.
• We expect China to fall into further crisis due to this overleveraging. Without sacrificing economic growth, deleveraging would be difficult.

Looking at China's debt issue, it wouldn't be that unfair to call recent market turmoil of 2016, just as preliminary or tip of the iceberg.

So, as Yen could very well reach as high as 98 per Dollar, so could the European blue chip index, EuroStxx50 could very well drop by almost 50%.

Trade idea 

• Sell EuroStxx50 CFD or future @current price 3012 and at rallies with target around 1500 area.
• Stop loss for this trade is big but reasonable compared to profit targets. Stop loss at 3750.
• This call is a longer term in nature might take quite more than six months to reach it.