After approaching what has proven to be rather solid resistance yesterday again, the USD/BRL did see a slightly bearish trading emerge. However, the Brazilian Real remains transfixed within a consolidated range which has not seen the USD/BRL sustain a prolonged test of support ratios since early August. Actually, support levels appear to have risen incrementally since the last week of July.
Support near the 5.4000 remains strong and has proven tough to break with downward momentum which can be sustained. Yes, the USD/BRL did touch the 5.3500 late last week, but upon reaching this value a bull run towards the 5.5000 level ensued fairly rapidly. Interestingly, this rather strong resistance juncture has also proven durable and has been solid since late June.
The consolidation of the USD/BRL should intrigue speculators because not only does a tight range exist, but because global risk appetite remains rather strong. As the Brazilian Real has traded within the confines of a bullish trend the past month against the USD and incrementally moved higher, other emerging currencies have done better. Intriguingly, while global equity indices have done well the past month, Brazilian equities have languished and not gained in a strong manner. The point is the Brazilian Real and the Ibovespa have not enjoyed the fruits of better risk appetite.
Economic conditions in Brazil are challenging and its export commerce will face some difficulties ahead. However, as the USD/BRL trades in its consolidated value band it has shown the technical ability to provide rather strong resistance too. If the 5.5000 level is broken higher the 5.6000 mark could certainly be tested, but until this happens traders may want to speculate on targets below which appear to carry better risk-reward scenarios. Selling the USD/BRL under these clouds of consolidation is certainly speculative, but if a trader uses solid risk management a wager on bearish momentum to develop may prove not only tempting but worthwhile.
The 5.4000 support level is important and if trading breaks below this juncture and challenges the 5.3500 mark additional selling may be seen. Since the beginning of August, a range of 5.2000 to 5.5000 has been dominant, but support levels have definitely risen and proven hard to break the past few weeks. However, if risk appetite stays steady globally and the US Dollar remains rather docile, the Brazilian Real may begin to attract attention and see selling of the USD/BRL emerge near term.
Brazilian Real Short Term Outlook:
Current Resistance: 5.5100
Current Support: 5.4000
High Target: 5.6000
Low Target: 5.3000
