The US dollar initially sold off on Tuesday but found plenty of support near the 5.6 real level to turn things around and show signs of life again. At this point, it looks as if we are pressuring major resistance above, as we are forming a bit of an inverted head and shoulders pattern. If we can break out above the resistance just above current trading, it is very likely that this market will take off to the upside. At that point, I would anticipate that this market could make a move towards the 6 real level, which of course has a certain amount of psychology built into it.
The US dollar is highly sensitive to risk appetite, and if we continue to see a lot of concern around the world, it does make a certain amount of sense that it will strengthen against emerging market currencies like we have in Brazil. Furthermore, coronavirus figures in Brazil have been consistently tough, and traders have been punishing that country as a result. Nonetheless, looking at this candlestick tells me that we have a good shot at driving much higher, due to the fact that the buyers were so aggressive on the pullback. The 50-day EMA is sitting at the 5.54 real level, and I think there is a certain amount of support there as well.
It is worth noting that the big pullback made the head of the inverted head and shoulders pull back to the 50% Fibonacci retracement level. On the other hand, the market is likely to continue to see more of a “buy on the dips” mentality, especially if at the end of the Tuesday meeting for the Federal Reserve, they start to talk about increasing the pace of tapering. This will tighten monetary policy, which works against most emerging market economies as they are highly levered to commodities. Ultimately, I think this market continues to see a lot of volatility, but it certainly seems as if it shows a lot of upward pressure. As far as selling is concerned, I do not necessarily have a scenario in which I'm willing to do that at the moment, but if that changes, I will let you know here at DailyForex. It certainly looks as if the market has made up its mind as to which direction it feels comfortable in.
