The pair will likely keep falling, with the next key target being at the lower side of the channel at around 5.00.
Sell the USD/BRL and set a take-profit at 5.00.
Add a stop-loss at 5.2770.
Timeline: 1-2 days.
Set a buy-stop at 5.2500.
Add a take-profit at 5.35 and a stop-loss at 5.5.100.
The USD/BRL is stuck in a horizontal range even after the relatively hawkish Brazilian Central Bank (BCB). The pair is trading at 5.1680, which is slightly below this week’s high of 5.2754.
Brazil is facing a strong period of inflation. In July, data by the country’s statistics agency showed that consumer prices jumped by 8.4% year-on-year. This was the highest level in more than 5 years.
This trend is traced to the country’s worst drought in decades and the overall high commodity prices. In the past few months, most commodities like soybeans, cotton and corn have jumped because of the rising demand from China.
The country’s unemployment rate has also risen to almost 15%. Therefore, it is against this backdrop that the Bank of Brazil held its monthly meeting. As widely expected by most analysts, the bank decided to hike interest rates by 100 basis points to 5.25%. This was the biggest rate hike since 2003. It was also the fourth rate hike, making the BCB the most hawkish central bank in the world. The rate is also substantially higher than this year’s low of 2%.
Still, there are signs that the Brazilian economy is stabilizing. On Monday, data by Markit showed that the Manufacturing PMI rose from 56.4 to 56.7. This growth was attributed to the strong local and international demand and optimism among manufacturers. The services sector has also made a good recovery. Data published on Wednesday revealed that the Services PMI rose from 53.9 to 54.4.
The USD/BRL will next be affected by the latest American economic data. The key numbers will be the initial jobless claims data for last week and the latest exports and imports data. These numbers will be followed by the latest non-farm payrolls data.
The USD/BRL rose to a high of 5.2755 on Wednesday. This was a key level since it was the highest level since July 20. It was also along the upper side of the descending channel. It declined below this level after the hawkish BCB decision. It is also along the middle line of the Bollinger Bands while the Relative Strength Index (RSI) has moved to 47. Therefore, the pair will likely keep falling, with the next key target being at the lower side of the channel at around 5.00.