The Brazilian Real has essentially traded in a range between 5.0000 and 5.5000 the past month with intermittent trends depending on global risk appetite and sentiment being generated domestically. The USD/BRL the past five trading sessions has produced a narrow range mostly between the 5.2500 and 5.4000 levels, which highlights the potential for a breakout. The question speculators will ask is which direction the breakout will occur?
Interestingly, resistance has proven rather strong near the 5.5000 juncture since late May, so if a trader were to place a stop loss near this mark and short the USD/BRL it certainly could not be faulted. The question regarding where the greatest room for movement seemingly will take place is all about risk-reward scenarios. Technically, it appears the best speculative trade for reward is to sell the US Dollar against the Brazilian Real.
While President Bolsonaro of Brazil remains a hot topic for his political foes and those with liberal viewpoints, the President does maintain his rather strong stances. Bolsonaro has been hit by coronavirus personally, but his wife and daughter were reported to be free of the infection this weekend.
A good technical trader will ask why President Bolsonaro having coronavirus is important to the USD/BRL currency pair and the answer is it doesn’t. The Brazilian Real may have some small incremental trading based on the health of the Brazilian President, but the news has officially been baked into the value of the USD/BRL already and should be forgotten by traders.
If speculators keep the 5.5000 level as a guideline and want to sell the USD/BRL at its current levels while the forex pair tests a fairly consolidated range, now may be the time to act. The fate of global risk sentiment is a difficult thing to forecast. Many quarterly reports are due to start being published from US corporations this week which will certainly affect global markets.
However, the recent consolidation of the USD/BRL and what has appeared to be technically strong resistance levels for over a month help build the case that a decision to sell the US Dollar against the Brazilian Real may be the best speculative position short term.
Brazilian Real Short Term Outlook:
Current Resistance: 5.4000
Current Support: 5.2500
High Target: 5.4800
Low Target: 5.1500
