The USD/BRL has quickly re-established its long-term range as risk appetite delivered a strong dose of bearish momentum for the forex pair yesterday. Speculators cannot be blamed if they are asking if the selling of the USD/BRL was too strong on Monday. The Brazilian real hit a low of nearly 5.2200 at the height of its rather exuberant trading conditions, which it last tested via the USD/BRL in mid-September. All of this occurred after the USD/BRL had tested higher resistance in the past two weeks as nervous sentiment affected the forex pair.
The current price vicinity of the USD/BRL is near the 5.3800 level which may intrigue speculators because it is still below the value band of 5.4100 and 5.7500 which dominated trading from late September until the end of October. The USD/BRL has suffered from a bullish trend the past month and a half as risk adverse trading sentiment grew within the global markets, but also showed the Brazilian real is facing headwinds because of domestic fiscal concerns.
Yesterday’s trading certainly was euphoric and the USD/BRL seemed to benefit from optimism which created a wave of bearish momentum for the USD against many currencies. The Brazilian real should remain a currency of which speculators are suspicious as it trades. The USD/BRL has shown little ability to sustain bearish momentum; while it has done so on occasion, the forex pair has also offered an endless parade of reversals back to its current price band. Traders have an opportunity to take speculative positions within the USD/BRL, but patience will have to be practiced.
The current price level of the USD/BRL will need another dose of optimism in order for the pair to resume a bearish trend. The 5.2300 level has proven a large barrier for the USD/BRL. While it has been punctured lower during the past three months, it has also shown an ability to reignite higher reversals. Yesterday’s trading should intrigue speculators and tempt them to pursue selling positions. However, it may be best to wait for price action to be sustained within the current value range.
Speculators who do want to sell the USD/BRL may want to consider selling positions using the trend to capture potential momentum lower. The 5.3500 juncture looks like a potential area which may be a short-term catalyst for further downside price action. Luckily, speculators who do want to be sellers may be able to use rather comfortable stop losses near the 5.4200 level to protect against reversals higher which could develop.
Brazilian Real Short Term Outlook:
Current Resistance: 5.4100
Current Support: 5.3300
High Target: 5.7900
Low Target: 5.2900
