The USD/BRL powered higher early on Monday and then sustained higher values near the 5.0300 level which were last seen on the 1st of November 2023.

• Price velocity upwards struck the USD/BRL in early trading yesterday as the currency pair went from the 4.9880 vicinity and moved towards the 5.0300 in a span of two hours.
• The ability to break above the 5.0000 mark and sustain values above is noteworthy, and the USD/BRL finished Monday’s trading near the 5.0305 ratio.

(Click on image to enlarge) 

Traders who do not have open positions in the USD/BRL before the Forex pair starts today should wait and monitor conditions in the first minutes because it is likely a gap will be demonstrated. The USD has gotten stronger in early trading this morning against many major currencies in the wake of the Bank of Japan’s interest rate hike. While it may not seem easily evident as to why the USD would get stronger after the BoJ changed their monetary policy, the notion that financial institutions will be more cautious regarding the U.S Federal Reserve’s outlook is the likely culprit.

U.S Inflation and the USD/BRL

Traders of the USD/BRL reacted to last week’s U.S PPI results with buying. Inflation in the U.S remains stubborn and Thursday’s Producer Price Index numbers showed a surprising gain. The USD/BRL was trading near the 4.9520 ratio when the U.S data was published and rapidly climbed in the aftermath. Having gone into the weekend near the 4.9930 ratio within sight of the important 5.0000 level proved critical yesterday.

The swift move higher yesterday showed that sentiment is nervous about the U.S Fed’s monetary policy outlook. After trading at support levels since late January around 4.9000 and producing choppy higher trading the past month and a half, the USD/BRL has now broken through resistance and early results this morning will likely be volatile. Strong U.S inflation numbers last week created bullish fuel for the USD/BRL. The ability to break above the 5.0000 level and sustain prices near the 5.0300 level serves as a caution sign.

Short-Term Volatility to Come for the USD/BRL

The notion the Federal Reserve which is going to release its Federal Fund’s Rate tomorrow, along with its FOMC Statement has financial institutions nervous. The assumption the Fed was going to be dovish has now faded, and a realization the U.S central bank will likely remain cautious in the mid-term is factoring into the value of the USD/BLR, financial institutions are now counting on about two interest rate cuts from the Fed, not four this calendar year.

• If the USD/BRL opens with a move higher today, traders should expect volatility to potentially last into tomorrow’s Fed pronouncements.
• Traders should be careful with their risk taking tactics. Speculators anticipating another run higher should not get overly ambitious, because reversals lower could factor into the USD/BRL if price velocity is too strong.
• The last time the USD/BRL traded above the 5.0500 level was in October of 2023. Resistance should be monitored around this ratio if the currency pair jumps higher early today.

Brazilian Real Short-Term Outlook:

• Current Resistance:  5.0395
• Current Support:  5.0170
• High Target: 5.0655
• Low Target:  4.9860

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