The USD/BRL will open trading within the higher realms of its short-term price band and is actually challenging mid-term resistance levels. The USD/BRL finished trading yesterday near the 5.4540 ratio which is clearly within sight of highs attained late last week and values seen on the 20th of August which traded near the 5.4800 juncture. Short-term traders may want to glance at a one-year chart of the USD/BRL to gain a perspective on potential direction, particularly if they believe more bullish trajectory will develop.
Global financial markets remain fragile, and yesterday’s declines on the major US equity indices certainly did not calm the waters. Early calls from the futures markets in the States point to a mixed opening, which may not be a particularly optimistic signal considering yesterday’s losses and the ‘standard’ thought that a buying opportunity may exist because the market is considered cheap. If US markets remain nervous and continue to sell off, this could certainly spill into the Brazilian equity Ibovespa index and have an effect on the USD/BRL.
Technically, the USD/BRL is traversing near important resistance. If the USD/BRL were to break the 5.4800 ratio higher, not only would it penetrate important resistance and put it close to the important psychological value of 5.5000, but it would also deliver the Forex pair within the lower rungs of a strong value range seen from the end of February until the later stages of April.
During this time period earlier in the year, the USD/BRL traded within a rather intriguing range of 5.5000 to 5.8000. On the 8th of March, the USD/BRL moved towards the 5.8800 value. The period between late February and last week of April produced plenty of volatility and current market conditions could begin to mirror those results if nervous sentiment remains heightened. Current resistance near the 5.4800 is particularly close and, if the USD/BRL opens with upwards traction, traders cannot be blamed for believing the 5.5000 mark could be tested short term.
Certainly reversals lower can occur in the USD/BRL and traders must be ready for natural cycles of value movements. However, if support near 5.4200 proves durable short term and consolidation is produced, traders cannot be faulted for believing this is an additional bullish signal. The USD/BRL is not prone to vast spikes, but speculators would be wise to use stop loss and take profit targets astutely to manage their risk.
Brazilian Real Short-Term Outlook
Current Resistance: 5.4700
Current Support: 5.4200
High Target: 5.5230
Low Target: 5.3980
