After attaining a low of nearly 5.8750 last Thursday, the USD/BRL has provided upwards momentum and yesterday’s highs broke new records as trading closed around the 6.1479 ratio by the end of the day.
- The USD/BRL has been hit by a few substantial gaps upon openings the past handful of days, this as financial institutions continue to show a wide degree of agitation regarding the fiscal policy of the Brazilian government.
- The USD/BRL closed yesterday’s trading near the 6.1479 ratio, this after starting the day near the 6.0580 mark. Traders need to be mindful that while nervousness pervades the Brazilian Real that gaps and wide ranges may continue to be rather dangerous.
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Global Forex has been rather volatile also as the USD continues to exert strength against most major currencies, but the bullish momentum in the USD/BRL speaks to more than a simple USD centric outlook. Spending by the Lula da Silva led government in Brazil continues to be a concern with financial institutions in Brazil, this as inflation remains problematic too.
Reversals Lower Last Week Followed by New Highs
Traders tempted to believe the USD/BRL has been overbought may still want to try and sell the currency pair and look for reversals lower. Certainly downwards price action was seen early last week in the USD/BRL, but the mid and long-term trend of the currency pair has been higher which continues to make speculative wagers looking for upside tempting. Downside to support levels may prove opportunistic, but if they selling doesn’t material traders will need to be agile to make sure they do not get badly hurt with expensive losses.
The belief the USD/BRL cannot go higher from a technical viewpoint may feel correct, but the currency pair was near the 5.44000 in late September. From June until late September the USD/BRL did not show any ability to trade substantially lower, this while other major currencies where showing an ability to gain on a weakening USD. The USD/BRL was trading near 5.4100 in June of this year. From the end of September until now the Brazilian Real has lost value rather quickly.
Tomorrow’s U.S Fed Statement and the USD/BRL
While the U.S Federal Reserve interest rate decision is set to cause massive volatility in Forex tomorrow. Traders of the USD/BRL need to know the Fed’s likely interest rate cut of 0.25 has already been cooked into the books by financial institutions. This means the USD/BRL is already trading on the notion a U.S rate cut is going to happen.
- The USD/BRL correlation to U.S centric data has not been momentous; this is because financial institutions are reacting more to domestic concerns in Brazil than outward considerations.
- The run higher in the USD/BRL and ability to sustain value above 6.0000 and record creeping highs is a reason day traders should stay suspicious, and consider the potential financial institutions think additional buying is worthwhile.
Brazilian Real Short Term Outlook:
Current Resistance: 6.1510
Current Support: 6.1320
High Target: 6.1780
Low Target: 6.0920
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