The USD/BRL closed near its low yesterday, around the 5.0516 ratio. On Friday of last week, the USD/BRL climbed to a high of around 5.2200, a level it has last seen in March of this year. The sudden move lower in the USD/BRL mirrors other major currency pairs as financial houses have started to show signs they believe the USD has been overbought. It is also worth noting U.S. long-term Treasuries were trading at their lows yesterday compared to the past week.
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Before bearish traders hop onto the perceived trend lower in the USD/BRL with too much leverage and an overabundance of speculative zeal, it should be acknowledged the next two days will produce important U.S. data. Today an inflation report via the Producer Price Index will be published in the U.S, and later today the Fed’s FOMC Meeting Minutes insights will be made public.
Trend Lower is Enticing for USD/BRL Speculators
Since the 27th of September, the USD/BRL has been trading over the 5.0000 level. However, from the end of this May until the last week of September the 5.0000 level had been acting as a steady point of resistance in the USD/BRL. Taking market sentiment into consideration, it would be highly speculative to say the currency pair is going to break below the 5.0000 level in the near term and be able to sustain lower values. However, financial institutions seem to be showing signs they believe the Federal Reserve will have to begin backing away from its very hawkish rhetoric.
- The U.S. Fed is expected to raise its interest rate in November.
- However, if the PPI report today and tomorrow’s Consumer Price Index inflation data shows signs of declining prices this would be another signal for trading institutions to bet against the USD.
- Financial markets remain nervous and sentiment could shift quickly still, so speculators should not wager ‘the farm’ on any outcome.
Close Near Lows Yesterday and Today’s Opening in the USD/BRL
Today’s opening in the USD/BRL should be watched closely. After finishing Tuesday near lows, it will be intriguing to see how financial institutions react early as they prepare for today’s PPI and FOMC releases from the U.S which will be important in the broad markets. Tomorrow’s CPI numbers will provide major impetus too. If the USD/BRL remains near lows going into tomorrow’s critical inflation report it could signal behavioral sentiment is setting the table for an additional move lower. Speculators should remain cautious in the near term and monitor the U.S. reports and USD/BRL intently.
Brazilian Real Short-Term Outlook:
Current Resistance: 5.0785
Current Support: 5.0400
High Target: 5.1660
Low Target: 4.9910
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