A more positive outlook regarding the potential of tariff negotiations globally with the U.S has helped spur a better outlook for bearish perspectives regarding the USD/BRL.
The USD/BRL ended trading yesterday near the 5.6075 mark. The last time these lower values in the currency pair have been consistently traded was in October of 2024. The past month and a half of trading in the USD/BRL has seen a test of the 5.6000 vicinity only to spur bullish buying upwards. So is this time different for speculative outlooks?
Shifting sentiment regarding the possibility that tariff negotiations can move ahead in a favorable manner have started to be seen this week. The fact that China is talking to the U.S and the two nations have lowered the temperature on accusations regarding unfair trade practices has helped sentiment. Certainly, no deals of major stature have been signed between China and the U.S yet, but optimism is starting to be heard. This effects the Brazilian Real because China is Brazil’s largest trading partner. The relationship between China and Brazil correlated to the USD is not a small one.
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Financial Institutions Turn More Optimistic
The ability to trade near lower values early this week is likely not coincidence for the USD/BRL and the fact that China and the U.S have said they are talking. Behavioral sentiment remains the key generator of impetus for trading institutions and their outlooks. The USD/BRL has been able to move lower quite possibly because if China and the U.S have a better relationship, this means Brazil and the U.S could have a better chance of more commerce.
Only one and half months ago in April the USD/BRL went quickly higher and touched the 5.9000 to 6.0000 altitudes rather easily. The fast pace of the move higher did not exactly catch experienced traders by surprise. The politics and the effect on outlook of financial institutions creates volatility in the USD/BRL. Brazil has been able to stay out of the spotlight regarding President Trump’s tariff rhetoric and has instead reacted to outside developments via China implications.
Correlation to Broad Forex Market
Yes, the USD/BRL certainly also trades on the fiscal and economic outlook financial houses have regarding Brazil and the U.S, but the past few months of trading have seen a dynamic correlation regarding sentiment shifts which have been volatile because of tariff implications. The ability of the USD/BRL to traverse lower values since the 9th of April has been large.
- However, the current value of the USD/BRL is now bouncing up against marks seen in the last week of April, this before the currency pair reversed upwards and touched a high around 5.7500 on the 9th of May.
- Traders should be careful regarding short-term wagers, but they cannot be blamed if they believe their may be a bit more downside to find in the coming days.
- The question is if the optimism financial institutions feel about the tariff implications will hold, or if worries about fiscal policy in Brazil could create some headwinds which may mean support becomes durable again.
- Traders should remain cautious and not overly confident regarding their outlooks quite yet. 5.6000 is an interesting support level.
Brazilian Real Short Term Outlook:
Current Resistance: 5.6150
Current Support: 5.6000
High Target: 5.6400
Low Target: 5.5800
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