Upon opening for trading on early Friday the USD/BRL sold off quickly and extended Wednesday’s late selloff lower taking the currency pair to within sight of important mid-term support.
The USD/BRL went into the weekend near the 4.9010 ratio, after experiencing a large gap lower. On Wednesday the currency pair closed near the 4.9500 vicinity before going into Thursday’s holiday. The drop lower on Wednesday followed the decision by the U.S Federal Reserve to hold the Federal Funds Rate in place, while the Central Bank of Brazil cut another 0.50% from its interest rate bringing the borrowing fee to 12.25%.
The USD/BRL had started last week still hovering near highs and was exhibiting value around the 5.0700 vicinity, a mark last seen on the 20th of October. However, as Tuesday passed and Wednesday started incremental selling was seen in the USD/BRL as it began to challenge the 5.0000. Upon breaking through this support level, trading stopped on Wednesday near lows which had not been sustained since the last week of September.
Correlation to Broad Market for the USD/BRL
With a day to contemplate the global Forex markets because of All Souls Day on Thursday, Brazilian financial institutions and their counterparts returned to full volume on Friday and the swift drop in value displayed strong selling sentiment. Intriguingly, the gap lower was sustained throughout the day as the weekend approached with no signs of volatile reversals upward. Technically the USD/BRL is now within clear sight of important mid-term lows, with the currency pair near a ratio it last traded for a while in the middle of September.
Risk appetite has shown signs of life in the past few days in the global financial markets. U.S. Treasuries saw their yields decrease last week and finish near mid-September marks which correlates to the weakness in the USD. Speculators with a sense of adventure may be tempted to continue to look for downside momentum. The opening of the USD/BRL will certainly be of interest today, if the currency pair opens near the 4.9010 mark and see sustained trading near the ratio, this could be a sign financial institutions believe lower values are anticipated.
Lack of Major Economic Data and Risk Sentiment Winds for the USD/BRL
- There will be a lack of key economic data from the U.S today and tomorrow, meaning the USD/BRL will largely trade on behavioral sentiment.
- The 4.9000 ratio is clearly an important support level for the USD/BRL and if it is broken lower it could signal that values that lows from late August and September could be challenged which approached the 4.8400 mark.
- Traders should remain conservative in the near-term and remain realistic regarding their price targets.
- Resistance near the 4.9200 to 4.9300 in the short-term could prove important. Traders need to be prepared for the potential of slight reversals higher which test the swift drop in value of the USD/BRL which occurred on Friday.
Brazilian Real Short-Term Outlook:
Current Resistance: 4.92590
Current Support: 4.8990
High Target: 4.9580
Low Target: 4.8570
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