The USD/BRL moved upwards again late last week and the higher values in the currency pair are now within sight of mid-term resistance levels which may attract speculators.
- While Brazil lowered their interest rate to the 10.75% level and has maintained this borrowing rate since late March, the USD/BRL has held onto its higher values, but it is still below apex marks seen in April.
- The currency pair ended yesterday’s light trading session near the 5.1723 ratio which is below the highs seen on early Monday when the USD/BRL touched the 5.1844 vicinity.
The USD/BRL is well below its apex highs seen on the 16th of April when a value of 5.2930 was challenged. Financial institutions have traded the USD/BRL in a correlated manner with the broad Forex market taking into consideration the selling the currency pair has created since the highs of April. However, the past three weeks of trading, since the 7th of May has seen an incremental tendency for the USD/BRL to remain elevated and test resistance levels and sometimes prove them vulnerable.
Overbought Sentiment as Hopes Gear towards a More Dovish Fed
While financial institutions have clearly shown nervousness regarding the Brazilian Real the past few weeks and have not created stronger selling in the USD/BRL some speculators may be tempted to believe the currency pair is overbought. The 5.1000 level however has not been seen since last Tuesday in the USD/BRL and for this support ratio to once again be touched large players may need more impetus to sell.
The U.S was on holiday yesterday which led to the very quiet day of trading, and what should be considered during this rather tranquil day of Forex is the acknowledgement the USD/BRL opened with buying action being the stronger factor early. Today’s opening should be watched because behavioral sentiment in the USD/BRL could be nervous early, particularly as full volume is generated. A gap upon the open today will likely be seen. While traders may be counting upon a more dovish U.S Federal Reserve to be seen, betting on this to happen is still taking a risk in the near-term.
Support Levels and Hopes for a Weaker USD/BRL
Traders who want to wager on downside developing in the USD/BRL need to be careful. This Thursday the U.S will release GDP data which could deliver a solid amount of fuel to the USD/BRL, but until then choppiness will likely be highlighted. The ability of the USD/BRL to incrementally trade higher last week is a warning sign financial institutions in Brazil may remain nervous about U.S interest rate policy and the fiscal policy of the Brazilian government.
- If the USD/BRL opens with a lower move this would correlate to the broad Forex market based on early trading seen in other major currency pairs, but traders should not depend on a one way avenue to build and they should keep their targets realistic.
- If U.S GDP numbers are weaker this Thursday, this could help the USD/BRL create a selloff which takes the currency pair to lower values, until then betting on the currency pair should be done with solid risk management.
Brazilian Real Short Term Outlook:
Current Resistance: 5.1800
Current Support: 5.1695
High Target: 5.1925
Low Target: 5.1510
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