The Brazilian real has endured a significant bullish trend against the USD since the 18th of September. The USD/BRL was trading near the 5.2300 level early during the third week of September, when buying momentum emerged and began to incrementally take the forex pair higher and test resistance frequently. After the culmination of the US election and the outcome largely known, the USD/BRL has seen some of the bullish momentum lessen. Short-term scenarios will certainly continue to prove dangerous for speculators, but the forex pair has begun to engage support levels which may prove significant in the days to come.
Support near the 5.6100 juncture could prove to be an inflection point for the USD/BRL if global risk appetite continues to show signs of improving. With the notion that Joe Biden will become the President-elect in the US, equity indices began to stabilize and show the ability to climb. The Ibovespa index of Brazil also produced a winning session yesterday. Early calls from US future markets indicate a positive opening for equities in the US again today, which may mean that investment houses are ready to engage with optimistic undertones in the near term.
The government of Brazil will clearly have to engage with Joe Biden in a different manner than it has with Donald Trump, but the US and Brazil will certainly maintain a warm relationship and trading conditions may even prove easier for South America’s largest economy. The USD/BRL has traversed the higher realms of its value range consistently since the 21st of September and a value band between the 5.4300 and 5.6800 has largely been seen, with outside bursts of movements higher. Speculators may believe an opportunity exists to pursue selling positions based on the notion that the current price action near 5.6600 will see additional downside pressures ensue.
Selling the USD/BRL and targeting bearish support below may prove to be the best choice short term. From a risk/reward perspective, there does seem to be more opportunity to pursue downward momentum compared to the notion that resistance levels above will be tested in full. If the 5.61000 level is broken lower and sustained trading is established, speculators may look to mid-October values to be targeted near the 5.5200 area.
Brazilian Real Short Term Outlook:
Current Resistance: 5.7200
Current Support: 5.6100
High Target: 5.7900
Low Target: 5.5700
