After consistently battling support levels in the last four weeks, the USD/BRL has displayed bullish sentiment the past two trading sessions as risk-averse trading has taken hold. However, after testing critical resistance near the 5.4800 juncture yesterday, the Brazilian Real has shown a slight inclination to reverse lower. The move downwards has not been ultra-strong and the USD/BRL remains within the higher realms of its short term technical charts, but the ability of resistance to prove it has some firepower and push values lower may prove worthwhile evidence.
The USD/BRL is trading within a range of 5.3800 to 5.4300 currently as it tries to establish a new equilibrium after the bullish surge higher. Risk appetite globally has been shaken the past two trading days as US markets have turned negative. The Ibovespa of Brazil has also seen sharp declines in its equity index.
This morning’s calls from US future markets indicate there will be another negative opening today. However, speculative selling doesn’t appear quite as strong as it has recently, although this can prove a momentary notion. Traders need to ask themselves if the stock markets have run out of gas and if a real bearish move is about to become established, or has the past couple of negative days merely been part of the natural progressions within the marketplace.
Speculators may not want to gamble against the mid-term trend quite yet. Meaning that the USD/BLR has shown an ability to creep lower and the Brazilian Real has established a fairly capable bearish trend since the 19th of August when the forex pair traded near highs of 5.6800. Yes, the past two trading days have produced a strong move upwards, but resistance has intriguingly proven tough and speculators may feel obligated to use the junctures of 5.4800 to 5.5100 as stop-loss limit orders.
Selling the USD/BRL as risk-averse trading has shown signs of reawakening could be a dangerous notion and one that could cost money if things do not go your way. However, the current price action of the Brazilian Real early this morning shows that the USD/BRL may have found the upper limits of its value and selling may prove advantageous near term. The Brazilian Real’s test of support levels may develop again rather soon.
Brazilian Real Short Term Outlook:
Current Resistance: 5.4800
Current Support: 5.3600
High Target: 5.5400
Low Target: 5.2900
