The US dollar rallied significantly on Tuesday to show strength yet again against emerging market currencies, in this case, the Brazilian real. The market is currently breaking above the 5.39 level and threatening the 5.40 area. This is a market where the trend is most decidedly to the upside, now that we have broken above a massive “W pattern.” This “W pattern” is a bullish sign, and if you remember the last time that I covered this pair, I had suggested that the recent pullback had been much shallower than the one before it, so it does suggest that we are getting ready to go higher. We have seen that happen already, and now it looks like we are getting ready to go toward the 5.70 level.
The 200-day EMA sits just below the 5.20 level and is rising. In other words, this is an area that should be supported, perhaps even defining the trend in general. That being said, the market is likely to continue to find plenty of buyers, and I think that we will continue the uptrend over the longer term. After all, the market is going to favor the US dollar when we have a lot of uncertainty when it comes to the overall flow of money, and of course the lack of growth around the world. After all, Brazil is a commodity economy, and commodities have an outsized effect on the BRL.
The US dollar has been strong against almost everything and you need to pay close attention to these emerging market currencies, because they can give you a bit of a “heads up” as to where we may be heading over the longer term. With this in mind, it looks like the US dollar is going to continue to strengthen, and I think we probably have plenty of runway to the upside.
If we were to break down below the 5.10 level, then we will threaten the 5.00 level, which is the “bottom of the market.” If we were to break down below there, then it would be a massive turnaround in this marketplace. Ultimately, this is a market in that I think we will continue to see a lot of noisy volatility.
