- The USD/BRL has pulled back a bit initially during the trading session on Thursday as we continue to hang around the 5.20 BRL level.
- The market is walking along a trendline that has been in effect for a couple of months, and now we are hanging around the 50 and the 200-Day EMA indicators.
- The market continues to see a lot of slow upward momentum, but it’s also worth noting that this market has performed well as far as the Brazilian real is concerned, considering that most other exotic currencies have been followed.
At this point, I would anticipate that the US dollar should continue to see signs of strength, especially as interest rates continue to rise in the United States. The 5.40 level could be the next target, but it looks like we have choppy, yet slightly positive trading ahead of us. The market will continue to be very noisy, since we have a lot of problems when it comes to the interest rates in America strengthening, but at the same time as Brazil is an emerging market, it has a lot of build in volatility to begin with. However, Brazil does have the benefit of having a lot of agricultural commodities, which will typically do a little better than some of the other ones like hard metals or energy in times of slowdown.
Real to Continue Losing Ground
Either way, I think it’s more likely than not that people will be comfortable holding dollars than real, so it’s likely that we will continue to see a squeeze higher. If we were to turn around and break down below the 5.00 level, that could send this pair much lower. In that scenario, you would probably have a situation where the US dollar would be selling off against most other currencies as well.
The biggest mover of the Forex market right now is the Federal Reserve, and they do continue to tighten monetary policy and therefore the US dollar will continue to be very strong. If that’s the dynamic, it will more likely than not continue to be dollar positive against most of these emerging market currencies. Regardless, keep in mind that this pair is very choppy and noisy, so there will be the occasional pullback.
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