The USD/BRL exchange rate was unchanged on Wednesday morning as investors reacted to the ongoing woes in the Brazilian economy. It was trading at 5.3810, a few points above this month's low of 5.2693.
USD/BRL Technical Analysis
The daily timeframe chart shows that the USD/BRL exchange rate has been in a downward trend this year, moving from a high of 6.3152 in December to a low of 5.2693.
It has formed a double-bottom pattern at 5.2693, its lowest level on September 17 and November 10 this year. A double-bottom is often a highly bullish sign in technical analysis.
The pair moved above the 61.8% Fibonacci Retracement level at 5.322, and the upper side of the descending channel is shown in blue. It also moved slightly above the 50-day Exponential Moving Average (EMA), a sign that bulls are gaining control.
Therefore, the combination of a double-bottom and moving above the descending channel points to more upside, potentially to the 50% retracement level at 5.5135. On the other hand, a drop below the support at 5.26 will invalidate the bullish outlook.
Top Forex Brokers
Brazilian Economy is Slowing
The USD/BRL exchange rate has moved up slightly because of the ongoing strengthening of the US dollar. Data shows that the US Dollar Index has jumped from $96 earlier this month to over $100 today.
The pair also reacted to a recent statement from a senior Brazilian Central Bank official, Nilton David, who said that the recent monetary policy tightening had ended.
Unlike other central banks, Brazil has been in a hiking cycle this year, moving the benchmark rate from 13.25% in January to 15% today. The hope was that the tightening policy would help to tame the elevated inflation, which has jumped to a nearly two decade high.
Analysts now believe that the bank may opt to cut interest rates in its January meeting, with a recent Bloomberg survey predicting a potential cut to 12% by December last year now that inflation has slowed.
Analysts also expect the Federal Reserve will cut interest rates by 0.25% in the upcoming meeting as recent data pointed to a slowdown in the American economy.
For example, a report by the Conference Board showed that consumer confidence tumbled this month as concerns about the labor market and inflation remained. Another report showed that the US retail sales dropped slightly in September before the country went to a shutdown.
Want to trade our daily forex analysis and predictions? Here are the best brokers in Brazil to check out.