- The USD/BRL gapped higher on its opening yesterday and essentially began trading near the 4.9500 level.
- Choppy price action the remainder of the day ensued, but an incremental climb upwards was certainly the central theme during the day.
- Upon breaking above 4.9600 and mid-term resistance created during the U.S Federal Reserve’s FOMC Statement in the middle of December, the USD/BRL continued to fight upwards.
Price action in the USD/BRL did not correlate with the broad Forex market. Although there may be underlying causes for the sudden climb in the USD/BRL above important mid-term support levels, which may include cash transactions by corporations settling accounts. There is also the prospect that a plan announced by President Lula de Silva to ‘invest’ 300 billion BRL (roughly 60 billion USD) on older business infrastructures in Brazil caused some reactions among large traders yesterday.
Effect of Policy in Brazil has not Hurt USD/BRL until Now
Perhaps it was a large corporate transaction that sparked the upwards momentum on Monday in the USD/BRL, but suspiciously when the currency pair broke through the 4.9600 mark it seemed to gain nervous price velocity and finished near the 4.9895 ratio. The last time the USD/BRL traded at its current heights was on the 1st of November. In October of 2023 the USD/BRL touched a high of almost 5.2200. The upwards mobility of the USD/BRL then did correlate to the global Forex market at that time.
Trading action in the USD/BRL has mostly mirrored the larger global Forex picture in January, but yesterday’s price action may mean the currency pair is reacting to nervousness regarding President Lula de Silva’s socialist tendencies. Today’s opening in the USD/BRL should be watched very carefully, another gap higher in the currency pair could be an anxious signal from financial institutions.
USD/BRL 5.0000 Value in Sight and Important
The 5.0000 level is in sight for the USD/BRL and some speculators may believe this will become a natural target for bullish wagers. However, if trading was only affected by large corporate transactions yesterday, perhaps the USD/BRL will begin to reverse lower rather quickly. Yet adding to the intrigue is the fact the USD/BRL closed at the high for the day. USD/BRL trading will prove fascinating over the next few days and if the USD continues to show some weakness or simply remains steady in the broad Forex market, but the USD/BRL continues to climb this would signal financial institutions are reacting in a nervous manner to the Brazilian government’s planned fiscal policy.
- Short-term sentiment will be tested early in the USD/BRL and the currency pair may continue to provide some volatility.
- Financial institutions also know important GDP will be released this Thursday from the U.S, this could factor into positions that are placed by larger players as they look ahead.
Brazilian Real Short Term Outlook:
Current Resistance: 4.9940
Current Support: 4.9810
High Target: 5.0440
Low Target: 4.9490
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