The BRL/USD closed yesterday’s trading near the 4.9675 level which is traversing interesting resistance levels. The BRL/USD did touch the current price range it is now trading in the middle of August, but then slumped to a low of around 4.8400 briefly near the 31st. Trading in the USD/BRL the past handful of days has been fast since last Wednesday. Yesterday’s volatile opening certainly created nervous tension for some speculators.
As the USD/BRL trades within sight of the important 5.0000 level again, speculators are likely considering their perceptions, the last time the currency pair traded above the 5.0000 ratio was in the final week of May. Since then the USD/BRL has hit resistance levels it is now challenging and then reversed lower.
Nervous Broad Market Sentiment Makes the USD/BRL Dangerous in the Short-Term
While mid-term resistance levels are within sight for USD/BRL traders, short-term consideration must be given to the amount of nervous behavioral sentiment that is dominating the global financial markets. Traders remain anxious about U.S. Treasury yields and equities. This nervousness seems to be spurring risk-averse reactions from financial institutions.
Late last week’s climb in the USD/BRL took place without a huge amount of trading volume because U.S. markets were affected by the absence of traders who were leaving for a long holiday weekend. Yesterday’s sudden surge of volume certainly helped cause the USD/BRL to jump higher upon the return of U.S. financial institutions.
Yesterday’s Move Higher in USD/BRL is Rather Suspicious
- Bearish speculators who have been pursuing price action lower in the USD/BRL may believe the currency pair is overbought.
- However, because of the nervous sentiment in the broad markets, traders may want to wait until they see sustained movement lower to jump onto any potential developing trend.
- USD/BRL traders should be careful because tomorrow U.S Federal Reserve members will be speaking at several different locations, and they will certainly give their opinions on what they believe the U.S. central bank should do next – and disagreements may be heard too.
A lack of clarity for financial institutions is weighing heavily on their outlooks and causing nervous reactions in the broad markets. The upward momentum in the USD/BRL main continues to produce volatility in the near term, and traders need to be cautious because of tomorrow’s potential impetus coming from Fed member's rhetoric. The resistance levels of the USD/BRL are intriguing and might propel some short-term selling speculation, but traders who want to pursue downward movement before tomorrow’s Fed sound bites to the media should be practicing solid risk management.
Brazilian Real Short-Term Outlook:
Current Resistance: 4.9810
Current Support: 4.9560
High Target: 5.0100
Low Target: 4.9095
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