- The USD/BRL has rallied again during the trading session on Tuesday, which of course, is highly levered to commodities and Latin America overall.
- As we are in the middle of the holiday season, it does make quite a bit of sense that you should be looking for a range-bound market to trade if you are trading at all, and as you can see in the chart, this is a very range-bound market.
On the bottom, we have the 5.00 BRL level, and on the top, we have the 5.50 BRL level. We are distantly bouncing around back and forth in this region, and I think that will continue to be the case because quite frankly it’s difficult to imagine that a lot of senior traders at banks and hedge funds are suddenly going to go knee-deep in the Brazilian currency market. If we do break out of this range that I have clearly marked on the chart, then we could have a rather big move.
Looking for Reasons to Move
Keep in mind that a lot of this comes under US dollar strength more than anything else, but it should be noted that this market has gone sideways while the US dollar has gotten soft again in several major currencies. What this tells me is that the Brazilian real is clearly soft. If we were to break above the 5.50 BRL level, then it opens the possibility of a move to the 6.00 BRL area. On the other hand, if we break down below the 5.00 BRL level, then we may drop down to the 4.50 BRL region.
Ultimately, that would be the “measured move” of the rectangle that we are trading in, and quite frankly would not be overly surprising to see that the market does very little between now and the jobs number in January because that’s when a lot of the liquidity comes back into the market. With this, short-term range bounding type of systems could be very profitable. This will be especially true in the next several days because quite frankly it’s difficult to imagine how this market takes off without some type of fundamental announcement or some type of shock to the system. The news could move the markets, but otherwise, I think we just go back and forth treading water and looking for some type of reason to move.
Ready to trade our Forex daily analysis and predictions? Here are the best Forex brokers to choose from.