The USD/BRL went into the weekend with a value near the 5.3825 ratio. The day before the USD/BRL traded near a high of 5.5300 before reversing lower. The low for trading last week occurred on early Monday as near the 5.2750 was briefly challenged, before climbing as trading slowed when Brazil’s national holiday was celebrated on Tuesday. After opening when the holiday concluded the USD/BRL again began to show more bullish momentum.
Simply put, concerns regarding the new Brazilian government’s potential fiscal and budget management have caused the USD/BRL to begin an upwards incremental climb. While the new Brazilian government can claim that it is ‘fear mongering’ by political opponents regarding fiscal matters, budget proposals do indicate an escalation of potential spending. The move on Thursday to a high not seen since the third week of July highlights the worries.
Traders Should Brace for a Gap when the USD/BRL Opens Today
Traders should monitor the opening of USD/BRL Forex early today as always. President Lula da Silva tried to calm the markets on Friday. However, if the USD/BRL remains within the higher realms of its one month price range and short-term support levels are sustained near the 5.3500 to 5.3400 ratios early, this may show financial houses do not believe Lula’s rhetoric.
- If support near the 5.3700 mark is maintained upon the opening, it could signal additional buying momentum may be displayed in the USD/BRL with resistance near 5.3950 looking rather vulnerable technically.
- If the USD/BRL climbs above the 5.4000 mark in the short-term and sustains this upwards juncture, traders may be encouraged and begin to target higher realms. Speculators with short-term intentions should not become overly ambitious and be willing to cash out winning bets if they materialize.
Potential of no USD/BRL Correlation to the Broad Forex Market
The USD/BRL could be entering a difficult stage for speculators, but an opportunistic one which may be dynamic. The USD/BRL is clearly being affected by fiscal spending concerns via the new Brazilian government which has a pronounced social welfare platform and has made promises to create a ‘social basket’ for its citizens.
The effects of spending more money and the potential lack of tight budgetary controls will worry financial houses and the USD/BRL could become more bullish. Incrementally the USD/BRL since November the 4th has shown an upwards trajectory, and this does not mirror the results of other major currencies paired against the USD the past few weeks. Speculators may want to keep wagering on upside movement in the USD/BRL, but they should use solid risk management and aim for realistic targets because ‘Rome didn’t crumble in one day’.
Brazilian Real Short-Term Outlook:
Current Resistance: 5.4110
Current Support: 5.3530
High Target: 5.4990
Low Target: 5.2910
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