- The Brazilian real strengthened a bit against the US dollar as the dollar fell to the 5.27 level during the Friday session.
- There is still a significant support level underneath that should continue to elevate the US dollar, especially once you get closer to the 5.25 level.
- This is an area where we had broken out of previously, so we should see buyers coming in to pick this market.
- The Brazilian real is a commodity currency, which is going to be out of vogue in general right now.
Risk Appetite
This is especially true with the Brazilian real because unlike some other commodity currencies, it does not have the benefit of the developed nation status of places such as Canada, New Zealand, and Australia. In other words, people are much more comfortable investing in a place like Australia or in a business that is based in Québec than in South America. Risk appetite is something that favors the Brazilian real, but right now risk appetite is something that has been decimated.
Furthermore, the 50-day EMA is starting to rally a bit, and it looks like we are trying to get back to a “golden cross” when the 50-day EMA breaks above the 200-day EMA. Once that happens, the market is very likely to go looking to reach the 5.40 level again. Breaking above there then allows for the market to go higher, perhaps opening up the possibility of a move to the 5.60 level. Because of this, it’s likely that we will continue to see plenty of “buying on the dip”, especially as interest rates continue to rise in America. I anticipate that we will go much further over the longer term, and you could even go so far as to draw a bit of a channel that we have been trading in as of late.
When you look at the W pattern that we just broke out of, the “measured move” suggests that we are going to the 6.00 level. The 6.00 level is obviously a large, round, psychologically significant figure, and it’s likely that we see a bit of reaction to that area. If we were to break out from here, it’s not until we break below the 5.00 level that I would be concerned about the upside.
