The USD/BRL spiked higher on Monday and nearly touched the 5.8685 ratio before reversing lower back to its known range which remains in elevated territory.
- The price of the USD/BRL closed yesterday’s trading near the 5.7240 ratio, which is an achievement considering a volatile gap surged early on Monday and the currency pair touched the 5.8685 vicinity momentarily.
- The violent move upwards to start trading yesterday was a nervous reaction to global financial market chaos which was certainly been seen.
- However, before traders celebrate the ability of the Brazilian Real to trade lower as yesterday progressed, they should consider a few technical notions.
The USD/BRL essentially closed Monday’s trading within values Friday’s trading traversed, which was within the higher tier of its week’s range. The USD/BRL began trading last week near the 5.6150 framework, the currency pair clearly maintained its rather strong bullish trend it has displayed since early May of this year.
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Signs of Nervousness Remain for the Brazilian Real
The inability of the USD/BRL to create significant movement lower this past Friday after the U.S jobs report came in weaker than anticipated is a warning sign for traders who think the USD/BRL remains overbought. The currency pair did touch a low of 5.7018 approximately on Friday after the U.S report and the realization the U.S Fed will likely have to cut its Federal Funds Rate in September, and may even be in a position in which a November hike will have to be considered.
However, this low seen on Friday remained near values the USD/BRL was trading on Thursday. And after the Fed’s rhetoric last Wednesday, financial institutions showed little desire to take the USD/BRL lower. In other words, it appears economic considerations likely being affected by fiscal concerns surrounding the Brazilian government are continuing to weigh upon the trading of the USD/BRL and is creating upwards momentum still.
Reversal Lower Yesterday and Short-Term USD/BRL Thoughts
While the USD/BRL certainly traded lower yesterday after exploding higher, the ability to touch the 5.8000 and surpass it yesterday while attaining a value last seen in March 2021 is troubling. It should also be pointed out technically the USD/BRL did approach the 5.7930 level on Friday before traversing lower after the U.S jobs report. Global market conditions are calmer this morning, perhaps the U.S will be more comfortable too within U.S indices. Yet, the inclination exist that the USD/BRL upwards move yesterday simply reaffirmed weak sentiment in the currency pair.
- The USD/BRL is going to be tested early today when it opens and its direction should be watched intently, if the currency pair remains above the 5.7000 level comfortably it may be a sign financial institutions continue to lean towards bullish thoughts.
- U.S economic data will be light the remainder of the week and behavioral sentiment will be important, meaning nervousness about Brazil’s fiscal policies may continue to affect results.
Brazilian Real Short-Term Outlook:
Current Resistance: 5.7275
Current Support: 5.7145
High Target: 5.7860
Low Target: 5.6980
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