analysis today 03-07-08

Bovespa May Fall to 60,000 as Commodities Drop, Citigroup Says

By Ferniawan Rese

July 2 (Bloomberg) -- Brazil's Bovespa stock index may drop to 60,000 on further declines in commodity prices, according to Citigroup Inc. strategists.

Citigroup's Bovespa forecast represents a 7.7 percent cut from its previous estimate of 65,000 and a 1.8 percent decline from today's close of 61,106.22.

``By far the biggest long-term risk for Latin American equities is a collapse in commodity prices,'' Citigroup strategists including Geoffrey Dennis wrote in a note to clients. ``Brazil -- with over 60 percent of the index being cyclicals -- would be badly hit and, under such circumstances would likely fall well below the 60,000 level.''

The 19 commodities in the Reuters/Jefferies CRB Index jumped 29 percent through June 30, the most since 1973 and more than any second-half gain in at least five decades, data compiled by Bloomberg show. The rally increased concerns that a correction in commodities prices may be due.

``The risk of such a fall is small near-term as the dollar stays weak,'' Dennis wrote. ``The timing of a major correction in commodity prices is more likely to be into year-end as the U.S. economy and the dollar finally rebound.''

Dennis also cut his forecast for Mexico's Bolsa by 6.6 percent to 28,000 from 30,000. The New York-based strategist kept his ``overweight'' rating for both Mexico and Brazil, though he favors Mexican stocks over Brazilian shares.

Any ``decent'' rebound for Brazilian stocks will depend on improving global conditions and clearer evidence of how high local inflation and interest rates will be, Dennis said.

``We continue to fear an above-consensus rate peak.''

The Bovespa has lost 4.4 percent this year, compared with a 3.4 percent drop for the Bolsa and a 15 percent decline in the MSCI Emerging Markets Index.

forex	target buy	target sell	close target buy	close target sell	profit	result
EUR/USD	-	1,5701	-	1,5691	10 pips	benefit
USD/JPY	106,7	-	106,85	-	15 pips
GBP/USD	-	19817	-	19800	17 pips
USD/CHF	10276	-	10286	-	10 pips
USD/CAD	-	10213	-	10200	13 pips
AUD /USD	-	9602	-	9590	12 pips
NZD/USD	7555	-	7565	-	10 pips
EUR/JPY	-	16743	-	16730	13 pips
EUR/GBP	7920	-	7935	-	15 pips
EUR/CHF	16100	-	1615	-	15 pips
GBP/JPY	-	-	-	-	-	none

analysis today

The USD started Asia on the defensive as most of the major pairs rallied again to new near-term highs against the Greenback; Cable and EURO finding previous resistance a bit tougher to break and stalling at previous monthly highs. Cable high print at 1.9968 roughly in line with previous highs in the same area from late April and reversing to go negative on the day shortly after the European open.

Disappointing UK mortgage approvals put the pressure on Sterling again and the rate made lows just ahead of the US open at 1.9894. EURO made a high print in Asia at 1.5837 before reversing along with GBP; low prints in early New York at 1.5745 before light bids supported the rate off the lows. Both GBP and EURO are tracking each other as cross-spreaders continue to work the Yen side of the crosses; speculation is high that the Yen will continue to weaken against most pairs but today appears to be a profit taking day as the reversals are in all Yen crosses.

USD/JPY was pressured into new monthly lows completing a reasonable fib retracement target for a low print in Europe at 104.98 before bids were seen and a short squeeze resulted. The rate has recovered to the 105.60 area in light trade as New York gets underway. Stops reported at the 105.50 area on the way down and again on the way up suggesting late traders are getting whipsawed.

USD/CHF dropped in tandem with other USD weakness falling to a low print at 1.0130 before a short squeeze took the rate back over the 1.0200 handle; traders note that across the board in all pairs stops were elected from what appears to be the late USD long. That being said, the probability of additional volatility and likely recovery now that the stops have been run is higher; aggressive traders can look to short EURO above the 1.5770 area and take gains on the Short USD/JPY and USD/CHF positions around current pricing if still in from the weekend.

Although the trend is lower for the USD I expect a lot of potential volatility this week and the next thing is to re-short on strength if we get it. Look for the USD to rally into previous resistance across the board and we can re-short it there. Today’s PMI data likely to inspire a bout of volatility.

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