The insights into exotic pairs: the BRL

The end of 2018 turned out to be bullish for the Brazilian currency. Back in November, the market was not sure in the president-elect Bolsonaro’s further steps. As a result, USD/BRL was trading sideways between the 3.82 and 3.94 levels. However, the recent news made the Brazilian real stronger.

One of the main reasons is connected with the weaker US dollar at the beginning of January, as the currency was affected by the government shutdown and the dovish tone by the members of the Federal Reserve. At the same time, the updates on the pension reform in Brazil cheered the market and supported the Brazilian real. According to the news, the new government plans to save 1 trillion reals over 10 years.  The whole reform is announced to take from 10 to 20 years. We anticipate the Brazilian government to suggest a model for its pension reform proposal next week. That is why it is highly recommended to follow the headlines on emerging markets.

Let’s look at the daily chart of USD/BRL.

The pair has been trading in the range bound manner between the 3.6790 and 3.7414 levels since the beginning of the week with low volatility. The rebounds from these levels may provide a good trading opportunity. If there is more positive news on the further steps on the reforms by the government and the USD is weak, the BRL may break the support at 3.6790 and target the next support at 3.6456. Otherwise, if the news disappoint the investors and the USD is strong enough, the pair will rise above the 3.7414 level towards the next resistance at 3.7704. Parabolic SAR shows a downtrend for USD/BRL, that is why the further fall is expected soon.


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