The US dollar fell against the Brazilian real on Tuesday to reach towards the 5.48 BRL level, an area that is backed up by previous buying, and a couple of other things at the same time. We have the 38.2% Fibonacci retracement level hanging about the 5.50 BRL level, as well as the 50-day EMA. It will be interesting to see what happens with the US dollar at this point, because Brazil represents a major commodity market, as well as exporter of various “things.”
Another thing that captures my attention is the fact that some commodities that Brazil was well-known for seem to be rising, especially in the agricultural sector. With that being the case, I think that we may see a real test of support in this region. If we can break down below the 5.40 BRL level, I think this market will break down rather significantly. However, if we can bounce from here, then we could very well continue the overall uptrend. That could send this market looking towards 5.70 BRL over the next couple of weeks, but keep in mind that this pair does tend to grind more than it does run.
The US dollar itself seems to be trying to reassert its strength during the trading session on Tuesday, but the commodity markets are on fire, so it does make sense that we would see some of these commodity currencies strengthen. Whether or not that can continue is a completely different question, but I think Brazil might be a little bit of an outlier because not only is it a commodity currency, but it is an area of the world that is struggling in general. In other words, we will have a lot of choppy “push/pull behavior”, so I think you need to be somewhat cautious about your initial position size. However, it should be noted that as we are getting towards the low part of the range for the day, it looks as if we are trying to recover a bit. That being said, we have a couple of important days ahead, so pay close attention to this market, as it might be a bit of a “sleeper” out there in the trading world, especially if sugar and coffee have anything to say.
