New HS50 idea and other updates

New Hong Kong HS50 cash idea and updates to EUR/GBP, EUR/USD and US 500 cash.

Hong Kong HS50 cash
Source: Bloomberg

Hong Kong HS50 cash - New idea

The Chinese markets have been on fire of late on the idea of further easing from the central bank. This Friday’s inflation report will be key and a below consensus (currently 1.2% yoy) would see this speculative activity increase even more on the idea of more aggressive actions from the PBoC.

Last week we saw measures from the regulators to lower the barriers for money managers to trade the H-share market. The H-share market is simply Chinese mainland companies traded in Hong Kong.

Naturally, this is different from the Hang Seng (IG quote this as Hong Kong HS50 cash) as this index also includes Hong Kong listed companies, but we should still see better performance from the Hong Kong market given these changes.

We are seeing record new account openings in China and this shows to me that pullbacks will be fairly shallow given the wave of new money coming into the market. Valuation-wise only 20% of companies on the HS50 have a current price-to-earnings ratio of 20 times, whereas this stands at 40% in Australia. If we turn to China’s mainland, however, 22% of companies have a current P/E of over 100. Hence my preference for the Hong Kong market.

Technically, the index has broken out so I would look at long positions from 25,450, with an idea to close on a break below 24,900. A move to 26,000 could be on the cards given the underlying momentum.

EUR/GBP – Stop loss triggered

EUR/GBP rallied strongly last week, once again testing the 61.8% retracement of the February to March sell-off. My proposed stop loss at £0.7346 was triggered in the process for a potential loss of 1.1%.

Technically there is an emerging double top pattern, so a break of the neckline at £0.7222 would be outright bearish and suggest new short positions. Stochastic momentum has started to fall again and this could highlight that the trend lower is about to re-establish itself.

EUR/USD - Stop loss triggered

Moving proposed stops to $1.0930 last week - closer to the market in case of a poor non-farm payrolls - seemed prudent given the price rallied to $1.1027. My stop was triggered for a potential profit of 41 pips or 0.4%.

The current set-up on the daily chart is fairly similar to EUR/GBP and the 61.8% retracement of the February to March sell-off is key. Moves to $1.1020 to $1.1050 (as highlighted by the blue zone) will continue to be good selling opportunities, in my opinion. A break of the 31 March low of $1.0713 would be outright bearish and suggest a retest of the March lows.

US 500 cash

No trade idea has been triggered as yet and, as said on 2 April, I would wait for the market to close below the 11 March low of 2038.9 before having greater conviction on short positions.

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