The USD/BRL continues to display the ability to trade in a lower fashion and it is within sight of important mid-term support, but traders may want to be careful.
The often heard phrase that the trend is your friend is very nice, but it can also prove very dangerous. The USD/BRL continues to fight its way lower and is now within extremely intriguing support levels not challenged since late August. In fact, if the USD/BRL currency pair was to trade much lower and begin to flirt with the 5.0000 realm, this would be a price not traded since the 22nd of June.
Accomplishing the bearish trend in the USD/BRL as Brazil accepts its newly elected President Lula da Silva is rather mysterious too. The USD/BRL has traded in a fashion that has gone against the grain of many major Forex pairs. Yes, many major currencies gained against the USD at the end of last week, but this largely developed after sharp losses against the USD on Wednesday after the U.S Federal Reserve remained rather hawkish regarding monetary policy.
What sounds like a Contradiction may actually be technical trading which is Proving Correct
Technical traders will likely point out the USD/BRL in fact has mirrored other major currencies the past week. This may be true, but from a fundamental perspective the strength of the bearish move in the USD/BRL looks rather suspicious. Speculators who want to wager on additional downside developing should remain cautious and likely keep their targets unambitious. However, having been proven wrong the past week, perhaps I need to remain quiet and stay out of the way.
The 5.0000 is within tantalizing view and traders should be careful upon the opening of the USD/BRL today. The USD/BRL frequently produces gaps and today will likely keep this tradition alive.The USD/BRL did climb upwards on Friday after hitting lows of nearly 5.0190 and this support level should be watched carefully today. But if the USD/BRL were to climb higher in early trading and start to challenge the 5.0670 mark this could spark speculative price action too.
Will the U.S Mid-Term Election have any effect on the USD/BRL?
The USD/BRL has perhaps moved in a technical fashion that mirrors other major currency pairs, but its ability to get stronger the past couple of weeks remains odd from my perspective. The U.S election results which will be known by Wednesday may play a slight role in the USD/BRL, but it may also remain rather minimal. Global market conditions remain fragile, the bearish trend of the USD/BRL has been notable and technically if the 5.0100 ratio is challenged and broken lower it will get the attention of many speculators who may believe there is further room to test lower support ratios.
Brazilian Real Short-Term Outlook:
Current Resistance: 5.0680
Current Support: 5.0489
High Target: 5.1110
Low Target: 5.0110