The USD/BRL has pulled back in the past few days, continuing a downward trend that started in December 2024 when it peaked at 6.3155. It dropped to 5.1560 on Monday, its lowest level since March 12.
Brazilian Real is Rising Despite the Strong Dollar
The Brazilian real has emerged as one of the best-performing currencies in the past two years as the country’s economy has maintained its resilience.
The most recent data showed that the country’s agricultural sector is doing well, with exports of key commodities like coffee and soybeans being in an uptrend, helped by the good weather.
Recent data also showed that the country’s inflation tumbled in February. The annual rate dropped to 3.81% from last year's high of 5.53%. This decline was mostly because of lower food prices because of the country’s bumper harvest. Housing and electricity prices also retreated during the month.
However, the labor market has worsened during the month, with the unemployment rate rising to 5.8%, its highest level since May last year. The central bank decided to slash interest rates by 0.25% in the last meeting, bringing them from 15% to 14.75%. The cut was lower than what analysts were expecting.
Looking ahead, the USD/BRL pair will react to the upcoming Brazilian services and composite PMIs, which are expected to remain above 50 in March. The US will also release the PMI report, which will show that the services sector continued doing well in March.
The pair will also react to key macro data from the United States and Brazil later this week. For example, a report coming out in February is expected to show that the country’s retail sales rose by 1.9% in February, a slowdown from the previous month’s 2.8%. The US will release its GDP and PCE report.
USD/BRL Technical Analysis
The daily timeframe chart shows that the USD/BRL pair has retreated in the past few years, moving from a high of 6.3155 to the current 5.1560.
A closer look shows that the pair has moved below the 50-day and 100-day Exponential Moving Averages (EMA). It has also formed a head-and-shoulders pattern and is now falling below the right shoulder.
Therefore, the most likely scenario is where the pair continues falling in the coming weeks. If this happens, the next key target to watch will be the psychological level at 5.00.