The USD/BRL finished yesterday’s trading below highs achieved on Monday and the currency pair has likely been potentially difficult for speculators to pursue.
The USD/BRL completed Tuesday’s trading near the 5.2535 ratio which was off of highs achieved earlier in the day when the currency pair moved above the 5.2600 mark briefly. On Monday the USD/BRL touched the 52.2820 level, and this needs to be studied because this value was achieved while the broad Forex market largely was trading stronger against the USD, compared to the emerging weakness being demonstrated by the Brazilian Real.
Last Week’s USD/BRL Did Not Correlate to Broad Forex Market Conditions
On Wednesday of last week, the USD/BRL traded near a low of 5.1000 momentarily, which had last been seen on the 3rd of February. Intriguingly the USD/BRL has begun to climb higher when the USD has actually gotten weaker against most other major currencies, because of the U.S regional banking crisis and the failure of Silicon Valley Bank which has caused nervous market sentiment globally.
The reason for the USD supposedly getting weaker recently against most other major currencies has been because financial houses have positioned for the U.S. Federal Reserve has to be less aggressive than anticipated on the 22nd of March. However, the fact the USD/BRL has gone largely in the opposite direction points towards likely ‘institutional’ economic concerns in Brazil.
Speculators will have to be an extremely cautious near term with the USD/BRL because as short-term highs are being tested, volatility and reasons for sudden reversals could develop. Clarity not only in the USD/BRL is hard to gather for the time being, but the entire Forex market.
- The U.S. will release Retail Sales figures and Producer Price Index numbers today. Both of these results could shake the USD/BRL.
- Stronger than anticipated U.S. economic results could set the stage for the U.S. Federal Reserve having to consider a 0.25% interest rate hike next week, which would not be accepted easily in the financial world and would set off Forex fireworks.
Traders Should Anticipate Volatile Conditions in the USD/BRL
The fact that the USD/BRL has not correlated to the broad market is troublesome. If speculators believe the bullish USD/BRL trend will persist, then additionally stronger than anticipated economic data from the U.S. later today could provide another lynchpin upwards. Risk management will be important today and traders should acknowledge the remainder of the week could be difficult.
A USD/BRL gap upon opening trading should be anticipated as always and nervous trading is likely. If the U.S. produces weaker-than-expected inflation results via the PPI reading today, this could stir some bearish sentiment in the USD/BRL. Until the U.S. data is known and digested speculators need to practice caution.
Brazilian Real Short-Term Outlook:
Current Resistance: 5.2590
Current Support: 5.2470
High Target: 5.2850
Low Target: 5.2150
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