The USD/BRL has continued to gain and this has occurred as a loud debate has become public between the ruling government of Lula da Silva and the Director of Brazil’s Central Bank.
- On Friday of last week the USD/BRL was trading near the 5.5000 level with healthy price action being displayed.
- The currency pair last week was certainly traversing mid and long-term higher ratios and this was happening as financial institutions were growing nervous about the public skirmish which seemed to be developing between the Workers’ Party of Lula da Silva and the Central Bank of Brazil.
The USD/BRL however ran into additional noise early this week as the Central Bank of Brazil refused to back down from its opposition to the rather liberal fiscal spending by Lula da Silva. The central bank said publically that inflation will be hard to control if excessive spending continues and budgets aren’t more fiscally conservative. The USD/BRL began to rocket higher on this outburst as financial institutions had their nervousness increase. Yesterday’s close in the USD/BRL was around the 5.6770 level.
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Higher Realms and Nervous Behavioral Sentiment Rocking the USD/BRL
Yesterday’s apex in the USD/BRL touched the 4.7000 level. The last time the USD/BRL swam in these higher tides was in late 2021 and early 2022, when coronavirus affects economically were still causing storms in global Forex. The ability to come off the highs yesterday was likely welcomed, but the Brazilian Real has seemingly entered a territory which is exhibiting a high degree of distrust from financial institutions. The Central Bank of Brazil has said it will not lower interest rates anytime soon.
The remainder of this week could prove volatile and dangerous for USD/BRL traders, not only because of the higher price range that is being tested, but because trading volumes in global Forex will drop significantly as the today progresses. The U.S Independence Day holiday will be celebrated tomorrow and because of this U.S financial houses will start to disappear for a very long holiday weekend. However, the bullish trend in the USD/BRL and capability of constantly making resistance levels appear vulnerable may not diminish and will need to be monitored. Gaps should be monitored.
USD/BRL Short-Term Worries and Near-Term Considerations
The 5.7000 level is certainly still within the sight of financial institutions for the USD/BRL. However traders must assume a lot of the trading they will see later today may not have a great amount of volume within the Forex system, meaning imbalances via transactions may cause more outlandish tests of values and be suspicious. Day traders should be cautious today and the remainder of this week. U.S jobs numbers will be published on Friday, but Forex volumes will remain lower than normal in the USD/BRL.
- While the upside in the USD/BRL may make some traders believe the currency pair has been overbought, the trend higher is a sure sign financial institutions are losing confidence in the Brazilian government.
- Lula da Silva will have to make a decision regarding the potential of sounding more conciliatory towards fiscal policy, or if he and his Workers’ Party will simply continue to fight publicly about more spending and conservative central bank policy they do not like.
Brazilian Real Short Term Outlook:
Current Resistance: 5.6835
Current Support: 5.6670
High Target: 5.7310
Low Target: 5.6380
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