USDBRL - Support served as pivot and may throw price to R$ 4.10There is a minor resistance (blue traced thin line) that needs to be broken.
Happy trading!
USDBRL trade ideas
BRL short term gains unlikely to sustain, uptrend to resumeTechnically, USDBRL has been losing upswings momentum as the rejection of resistance at 4.0050 levels and as soon as the pair approached 21DMA the bears began pushing downwards, in between a hanging man pattern is formed on rallies to signal weakness in previous upswings, leading oscillators are also converging these price declines. The next strong support is only seen at 3.9550 levels.
Nevertheless, this week markets are back to full-time activity as the carnival festivities are over. The main domestic price drivers in the weeks to come are likely to be the usual suspects: lack of political cohesion and concerns about the fiscal consolidation.
The government postponed the budget announcement to March, heightening concerns about its commitment to the current budget target (primary surplus of 0.5% of GDP). Furthermore, there are discussions on introducing a range for the primary surplus target.
In terms of data, the highlight of the week is December retail sales. We forecast a 2.0% decline in the retail sales index, partially paying back the increase in November due to the Black Friday sales.
For the broader index, the fall of 6.3% m/m sa in auto sales should contract the retail sales index by 2.7% m/m during the month, representing a 8.7% decrease for the whole year.
Concerns about the fiscal consolidation, and the likely resumption of political infighting will keep weighing on local assets.
Central banks that uphold pegs have been under strain after tumbling commodity prices and slowing global growth weakened currencies from Brazil to Russia by at least 18 percent in the past year.
We maintain our long USDBRL recommendation and keep long exposure to real rates as Brazil enters a regime of fiscal dominance.
USD/BRL spikes on cards, hedge upside risks via bull call spreadOff late retracements in USD versus emerging market currencies looks overdone, but BRL will likely underperform on any risk-off event. We foresee BRL as one of the most vulnerable currencies because of looming idiosyncratic risks.
Brazil is running the highest real interest rate in the world. Furthermore, debt to GDP is amongst the highest across EM.
While, The Brazilian GDP shrank 1.7% on quarter in the last three months to September of 2015, worse than market projections. It is the 3rd consecutive contraction in a row as investment shrank for the 9th straight quarter and household spending posted the third consecutive fall.
The combination of high real interest rates, negative growth and rising debt to GDP puts Brazil in similar debt dynamics to those observed in Greece back in 2010. The main difference between Brazil now and Greece in 2010 is that Brazil can monetize. In other words, unlike Greece, Brazil can print its own currency to service its local debt.
This could very well be one of the solutions to improve the fiscal outlook. Higher inflation could reduce as much as a third of the domestic debt market, which is not linked to inflation and has reasonably long-dated tenors.
We continue to carry bullish attitude in USDBRL and would eye in buying dips within the range. The 3.8400 range lows provide nearby support. Our initial upside targets are toward the 4.0470 area. Beyond there would signal further upside toward the greater range highs near 4.1720 and then the 4.2480 2015 peak.
We recommend going long USDBRL in 1M (1.5%) in the money 0.71 delta call and simultaneously short 2W (2.5%) out of the money call with positive theta and delta closer to zero for net debit, as the recent retracement in USD versus emerging market currencies looks overdone and BRL will likely underperform on any risk-off event. We view BRL as one of the most vulnerable currencies because of looming idiosyncratic risks.
Brazilian Real stabilizing near historical levels against USDIt's interesting to note that the USDBRL pair hasn't risen any further despite the route in the Brazilian bond market and the Fed rate hike this week. Of course, both were largely priced into the market. We're currently at one of those crossroads where fundamentals favor further US dollar strength against the Brazilian real whereas technical analysis suggests that one should be careful in following the general consensus on this particular market. I find it very interesting that the USDBRL has remained below its October 2002 highs on a monthly close basis since September despite all the negative news in Brazilian fixed income markets between October and December. That said, I would refrain from exaggerating the downside risk to this pair given that the dips have consistently been bought at around the 3,71/72 handle since October. If the dollar weakens (or the real strengthens) at the start of January with traders initiating new carry trade positions in the EM FX markets, we'll have to see just how things play out before being able to really tell if USDBRL will eventually break above its resistance.
Brazilian Real's Biggest Jump in Nearly 7 Years an EM Trigger?The Brazilian Real posted its biggest rally since November 2008 Thursday on threats by the country's monetary authority that it may intervene in the FX market to curb its dive. Can the group offset an underlying market current of risk aversion? Or, can the Real's move signal a reversal for the broader Emerging Markets? Unlikely on both accounts.
USDBRL - Snapshot on a friend's requestWeekly:
- Ichimoku setup is long term bullish. We still do not have a Kumo overshade and Chikou will stay in open space for long time. Of course at 3,20 and above Price was a bit overbought, got far above from longer term equilibrium levels, so a correction had to start.
- Heikin Ashi signal is counter bearish, the mkt is in a massive pull back phase. To candles marked with ellipse were the weeks, where mkt gave first signals of a consolidation or possible pull back. Those two candles had both upper and lower wicks, both candle bodies were inside body and haDelta/SMA3 crossed down from an extremely high level.
Since then, during the last two weeks the correction is in progress.
- Correction may continue down to Kijun Sen at 2,85 as first main support.
Daily:
- Ichimoku setup turnied from bullish to neutral, with some more bearish bias now -> Price is in the Kumo, Chikou is below Price but way above past Kumo, Tenkan/Kijun is weak bearish. Ichimoku trend followers had to exit long positions when Price broke back below Kijun Sen - buffer, so ard 3,08 offered level on 8-9/April.
Now Price will either start to range trade within the Kumo, or may even try to attack the bottom of the cloud to retest horizontal supp/res levels ard 2,85-2,90.
Please remember, that even if Price dips below the Kumo, that can not be called a firm bearish reversal on the daily chart. For a valid and sustainable bearish Kumo breakout Price always have to clear previous key horizontal level, in this case 2,85! If it trades below 2,85, from that point we can start to look for sell signals to enter a strategic bearish positions.
- Heikin Ashi signal is bearish.
Strategy: For those who are already in a swing short position, it is still ok to hold the shorts, and trail the protective stops. Those who are long, well they have to ask why they are still long? Those who do not have any positions on this cross it is wise not to do anything right now, as there is no good risk-reward trade setup here in the middle of the cloud, and for new positions chances are almost equal to win or lose.
p.s.:
I am really happy that one friend who is a follower of mine asked me to check this chart. Not because I trade BRL, but because I have position on Sugar futures, and as we know, Brazil is one of the biggest producers, so regarding sugar price action, USDBRL matters a lot.
You can find a link to my Sugar post below.
p.s.2: the more I look at the charts of different USD crosses and at DXY, the stronger feeling I have about the end of the 11 months USD bull mkt. I think from May to Aug we will see a massive USD long unwind generally and a deep correction. From August the bull may resume if mkt starts to focus on chances of FED rate hikes again.
