The USD/BRL closed near the 4.9855 mark yesterday as the currency pair continues to exhibit buying momentum which is now testing values last seen in early June. The upwards trajectory of the USD/BRL may have caught some traders by surprise who got ‘married’ to the notion that momentum downwards would continue without strong reversals higher.
Since hitting a low on the 28th of July around the 4.6950 ratio, the USD/BRL has demonstrated a solid move higher, mixed with reversals lower which are a natural part of Forex trading. Stubborn traders who have continued to bet against the upwards track of the USD/BRL need to understand they may be proven correct in the mid and long-term, but for the moment nervous sentiment in the global financial markets has caused risk adverse trading to escalate. Meaning the USD has gotten stronger across the board against many major currencies which have suffered - like the Brazilian Real.
The 5.0000 Level is in Sight and will get the Attention of Many
Resistance levels have proven vulnerable the past week. Yes the USD/BRL did trade lower last Wednesday and Thursday, which showed financial institutions did believe momentarily the currency pair had been overbought. However, the surge of strength in the Brazilian Real which has been technically evident since early January this year has run into headwinds for the moment.
Speculators who want to step in front of the trend that has marched higher the past few weeks need to be extremely careful in the USD/BRL. The prospects of more ratings downgrades to banks in the U.S. are causing nervous sentiment to grow and this has made financial institutions look for safe havens, which believe it or not means buying the USD in the near term. The 5.0000 level appears to be a target and may prove to be an important psychological mark for the USD/BRL in the near term.
Short-Term Wagers and Risk Management in the USD/BRL
- Yes, the USD/BRL is still within the lower depths of its one-year technical chart. Speculators may be proven correct that the USD/BRL will start to incrementally trade lower again eventually.
- Timing market reversals that are sustained is difficult; traders must use solid risk management in the USD/BRL.
- The three-week trend of the USD/BRL upwards may not have run out of momentum quite yet, targeting the 5.0000 level as resistance seems logical, solid risk-taking tactics must be used.
- A sustained move above 5.0000 in the near term would likely mean global trading conditions remain fragile and nervous.
Brazilian Real Short-Term Outlook:
Current Resistance: 4.9990
Current Support: 4.9710
High Target: 5.0490
Low Target: 4.8970
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