The USD/BRL has experienced a rather impressive display of price volatility in the past week, and more fireworks should be anticipated.
The USD/BRL went into the weekend near the 5.1996 ratio, this after actually trading near a low of 5.1085 on Tuesday of last week. The outcome from the first round in the Brazilian general elections for President was much closer than expected on the 2nd of October. And the combination a renewed outlook for a potentially dovish U.S Federal Reserve likely fueled the bearish turn of events for the USD/BRL the beginning of last week. However, by Thursday the USD/BRL was trading near the 5.1770 ratio, this as U.S Fed rhetoric stayed hawkish.
Then on Friday upon the better than estimated jobs numbers from the U.S, the USD/BRL shot up again and touched the 5.2530 briefly before retreating to its current value before the weekend. A combination of Brazilian politics and nervous global economic outlook regarding central bank interest rate policies is likely to keep the USD/BRL rather volatile this coming week. Global equity indices continue to exhibit fragile sentiment and if behavioral sentiment grows increasingly jittery this could cause a rather choppy range for the USD/BRL with upwards price action.
Mixed Outcome via the Final Round in the Brazilian Elections is anticipated
Financial houses are likely expecting a rather mixed outlook regarding the final round of elections which will be held on the 30th of October in Brazil. While the left leaning candidate is expected to win the Presidential vote, a right leaning government is expected to fill the legislative halls, which essentially means political gridlock. Financial houses may like the idea of gridlock with little being accomplished much more than having Luis Inacio Lula da Silva as the President with a freehand to do as he wishes.
- The reversal lower by the USD/BRL before going into the weekend is intriguing and today’s opening should be watched. A gap in value should be anticipated at the start of today’s trading.
- If the USD/BRL opens with a tranquil value and maintains its current range between 5.1950 and 5.2025 traders may anticipate a day in which speculative wagers can be tried seeking reversals.
If the Opening sees a Jump Upwards it could Signal Additional Buying of the USD/BRL near-term
However, if the opening of the USD/BRL opens with a strong move to the upside it could mean the currency pair may be seen as being oversold. Traders should be cautious and consider potential momentum trades in which the USD/BRL breaks through resistance and wagers seek limited upside which targets resistance with realistic goals. The USD/BRL has delivered rather turbulent trading the past few weeks and this is likely going to continue.
Brazilian Real Short Term Outlook:
Current Resistance: 5.2175
Current Support: 5.1890
High Target: 5.2650
Low Target: 5.1670