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USD/BRL: Promise of More Volatility for Speculators to Come

The USD/BRL has grown increasingly volatile the past week as domestic considerations in Brazil and global market nervousness combine.


The USD/BRL currency pair went into the weekend near the 5.3284 ratio. Traders should assume that the opening this morning will include a gap and speculators are encouraged to watch the USD/BRL for a while before pursuing a bet on a chosen direction. Last week’s results saw increased price velocity within the USD/BRL and traders who like fast action may find the volatility attractive.

A televised political debate last night in Brazil went as expected with the two presidential candidates hurling insults at one another. Financial houses in Brazil and observers internationally however, will not be scared off by the accusations which were voiced. Instead the USD/BRL will be wagered on by financial houses with the consideration the election is on the 30th of October, which will produce more turbulence for the currency pair until the outcome is known.

USD/BRL Domestic issues are Important in Brazil, but it cannot Escape Global Economic Concerns

While traders in Brazil may be focused on the upcoming election to gain perspective, retail traders of the USD/BRL globally are also concentrating on the U.S Federal Reserve. The USD/BRL has escaped much of the upwards bullish trajectory which has done damage to many emerging market currencies. As a prime example the USD/BRL was trading near 5.4600 one year ago today, a stark contrast to the South African Rand.

If the USD/BRL opens with a gap higher and it is sustained, bullish traders may be tempted to look for upside price action which could test targets seen on Thursday of last week, but realistic goals should be kept in mind.The 5.3000 mark appears to be interesting support; if it is broken lower the USD/BRL could test the 5.2700 to 5.2500 ratios rather quickly.

Traders need to keep in Mind the Increased Volatility the USD/BRL has recently produced

Volatility in the USD/BRL has increased the past three weeks of trading and this is likely going to remain a feature of the currency pair until the end of October at a minimum. Choppy results with fast velocity have become part of the trading landscape in the USD/BRL and risk management is essential.

Bullish traders who look for incrementally higher moves in the near term may be making a worthwhile bet, but they should use stop losses to guard against the potential of slightly lower moves. Using support levels as a place to ignite buying positions in the near term may prove to be rather interesting. If domestic concerns in Brazil increase regarding the outcome of the coming election and fears of a hawkish U.S central bank have an influence, the USD/BRL may find more bullish traction.

Brazilian Real Short Term Outlook:

Current Resistance: 5.3390

Current Support: 5.3025

High Target: 5.3940

Low Target: 5.2275

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