The USD/BRL went into the weekend near the 5.2959 level this weekend, before the Brazilian election yesterday which saw Lula da Silva win. Noticeably on Friday the USD/BRL actually saw selling action emerge. This result of the vote creates a door for today’s early price action which will certainly produce a gap upon opening.
The question for speculators is which direction the USD/BRL will move in the first hour of trading today. While the left leaning Lula da Silva won a tightly contested race for President against Jair Bolsonaro, it was actually Bolsonaro’s political party that won a majority in the Brazilian Congress and this will create a strong opposition to policy if they do not agree with President’s proposed legislation.
Technical Charts will be Important, but Reaction and Behavioral Sentiment will be Critical
Intriguingly, Friday’s downturn with bearish traction going into the weekend may be a sign of things to come with the USD/BRL. While financial institutions may not be pleased with a victory by the left leaning Lula da Silva, a strong political opposition in Congress means economic policy may not be able to stray too far from the center, this may create more calm than expected for the USD/BRL near-term.
- A rather volatile opening for the USD/BRL should be expected today, traders without any open positions may want to wait an hour while monitoring early price action to let the Forex landscape become calm.
- The support ratio of 5.2600 should be watched as a lower strong realm if bearish selling builds and traders may look for reversals upwards. A move above the 5.3700 realm above may be considered too high a value by technical speculators.
Choppy Trading Expected with the Opportunity to Wager on Short-Term Direction
Today could prove to be a ‘classic’ day of Forex trading in the USD/BRL as financial institutions react to the outcome of the Brazilian election. Many days are ahead for the potential of economic policy which could create a storm for the USD/BRL, but in the short-term equilibrium may be rather hard to find which may produce rather whipsaw conditions.
Traders should be able to take advantage of the volatility and wager on upside when support levels are flirted with in the near-term. Lula da Silva has produced a victory and in the mid-term this is not likely to make the USD/BRL stronger. In the short-term it is likely to help speculators take advantage of potential reversals when support levels are proven durable.
Brazilian Real Short Term Outlook:
Current Resistance: 5.3160
Current Support: 5.2824
High Target: 5.3790
Low Target: 5.2620
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