The USD/BRL closed trading around the 5.3880 level as sustained incremental selling pressure remained keeping the currency pair within its lower depth, this after a fierce spark upwards abruptly happened a week and a half ago.
On October the 10th the USD/BRL jumped above the 5.5200 juncture, previous to the spike upwards the currency pair had been traversing near the 5.3750 vicinity. The spark higher occurred a week and a half ago when President Trump made a sudden announcement that he was going to retaliate against China and impose harsher tariffs than had been previously threatened. The USD/BRL it needs to be said closed yesterday’s trading near the 5.3880 ratio.
Because of Brazil’s strong trading relationship with China the move higher in the USD/BRL seen on the 10th of October was a reaction by financial institutions who are exposed to potential ramifications of a U.S policy to inflict pain via trade tariffs. However, in the past week and a half, calmer thinking has prevailed and the USD/BRL has found its way back to lower realms. It should be stated that the entire global Forex market witnessed gyrations upon the White House announcement regarding China.
Correlations and Known Ranges in the USD/BRL
The ability of the USD/BRL to move lower the past handful of days has been clear. Yesterday’s trading did see an extended move sideways, but the currency pair did not show much desire to move higher. There is certainly a risk of additional threats from the White House regarding tariffs which would affect China and thus Brazil, but the Trump administration has toned down its rhetoric the past week and tried to sooth financial markets.
Previous to the recent tariff rhetoric becoming escalated again, the USD/BRL had been traversing lows which maintained a rather targeted terrain near the 5.3300 vicinity. Lower depths had been seen via intraday trading previously too, which tested the 5.3000 ratio and even below from mid-September until the first week of October. The broad Forex market remains choppy as the U.S government shutdown continues and the Federal Reserve is set to announce its interest rate decision next week.
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Attractive Lows but Suspicious
The temptation to believe the USD/BRL can go lower is attractive. However, day traders as always in the USD/BRL need to be careful of gaps upon the opening of trading and the threat of a sudden large order putting the market on unequal footing momentarily.
- The USD/BRL has likely factored the Fed’s interest rate cut which will almost definitely been seen next Wednesday.
- This could create support levels which may prove more durable than expected.
- Meaning traders looking for lower price action in the USD/BRL should not over reach for targets that are too ambitious.
- Pursuit of the 5.3600 to 5.3400 ratios may be realistic, but hard pressed.
- To the upside, resistance around the 5.4050 to 5.4100 levels look like they could produce additional reversals lower.
Brazilian Real Short Term Outlook:
Current Resistance: 5.3950
Current Support: 5.3810
High Target: 5.4190
Low Target: 5.3530
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