The USD/BRL continues to incrementally climb higher and price action the past couple of days has brought the currency pair to within sight of early July values.
- The USD/BRL closed yesterday’s trading near the 5.5705 level.
- The high for the USD/BRL on the 2nd of July touched the 5.7000 vicinity.
- While USD centric weakness has dominated most of Forex the past couple of weeks, the USD/BRL has continued to display an inclination to create more bullish momentum.
- The Brazilian Real has been one of the weakest major currencies this year and behavioral sentiment remains fragile.
Financial institutions are clearly not impressed with the current Brazilian government’s fiscal policies. The USD/BRL has climbed the past handful of days which may appear to correlate with the broad Forex market because of risk averse sentiment surfacing, and perhaps the notion the USD had sold off too much by the middle of last week. However, the upwards movement for the USD/BRL needs to be considered carefully because it may not be reacting to the same market forces.
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USD/BRL Reactions to Come and Speculative Notions
Interestingly, yesterday’s price action in the USD/BRL actually produced some selling momentum. Friday’s close around the 5.6130 may have been perceived as too much weakness regarding the Brazilian Real. The debate regarding the Central Bank of Brazil which has conservative leadership, and Lula da Silva’s ruling government is not about to be resolved quickly. This will naturally create some loud disagreements which will affect financial institutions.
However, the early selling pressure yesterday started to lose power when the 5.5350 ratio was tested. This level may be seen as important support and has acted rather durably since early Thursday of last week. The USD/BRL is trading in territory that it occupied in late June and financial institutions may be waiting for the next round of impetus to propel the currency pair. U.S data on Thursday and Friday of this week will prove an intriguing comparison for perspectives in the USD/BRL. The currency pair finished yesterday’s trading with upwards price action.
USD/BRL Comparisons to the Broad Forex Market
The overall health of the Brazilian Real has been called into question regarding its outlook as financial institutions have obviously been questioning its value and have caused the bullish surge in the USD/BRL over the past six months. The trend higher may not be ready to run out of power, but betting on consistent higher prices in the short-term can open the door to unexpected reversals. However, U.S Gross Domestic Product numbers on Thursday, and inflation data on Friday via the PCE Price Index will provide a solid comparison for USD/BRL traders with the broad Forex market.
- If U.S economic statistics are weaker than expected and the USD sells off in many major Forex pairs, but the USD/BRL does not create the same type of price action, the uncorrelated results will be another poor signal for the Brazilian Real.
- Looking for additional upside in the USD/BRL based on its trend may be the right bet, but speculators need to be very careful in the short-term and later this week could prove to be dangerous.
Brazilian Real Short-Term Outlook:
Current Resistance: 5.5745
Current Support: 5.5660
High Target: 5.6010
Low Target: 5.5370
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