The USD/BRL closed near 5.0317 yesterday which was near its high water mark for the day, this after the currency pair touched the 4.9950 vicinity early on Monday, the day before, after a gap lower.
Optimism in financial institutions that swept into the USD/BRL on its Monday opening continued to evaporate on Tuesday. After dropping to the 4.9950 mark to start the week as large players weighed into the belief a resolution may be forthcoming between the U.S and Iran, a more cautionary stance has crept into the broad Forex market and the Brazilian Real in the past day.
Yesterday’s trading saw an incremental increase in the USD/BRL as the currency pair moved slightly higher. And the words slightly higher are important, because the USD/BRL actually remains near its lower long-term value. The close around 5.0317 showed the USD/BRL is practicing a rather tight cautious range.
Sideways Price Action and Trading Considerations
The ability of the USD/BRL to remain within its lower boundaries and not stray too far above lows seen in the second of week of May are noteworthy. The price of WTI Crude Oil remains elevated, but as of this morning some momentum has been seen lower. The U.S was observing Memorial Day on Monday, thus trading volumes in the USD/BRL were lower than normal. Yesterday’s trading was reactionary as risk appetite which showed on Monday ebbed away.
Because the situation in the Middle East remains fragile, but positive according to U.S White House rhetoric - it appears that sideways trading may dominate today. Prices in the energy markets may become a large barometer regarding near-term outlook for financial institutions. The higher stance in the USD/BRL has likely also been effected because of worries the U.S Fed may increase its Federal Funds Rate, but if the price of WTI Crude Oil starts to show signs of lowering the interest rate raise concerns from the U.S may also calm.
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USD/BRL Stance Today and Tomorrow
The USD/BRL upon opening in a couple of hours should be watched for a gap. If the currency pair is able to generate some movement downwards, financial institutions may again start to believe lower values are possible.
The move below 5.0000 early on Monday was reasonable, but the absence of massive volume because many global major financial institutions were closed needs to be treated as suspicious.
Thus, day traders who decide to pursue momentum lower should remain realistic and not try to target values that are too far away.
Instead pursuing limited moves and trying to cash out positions using take profit targets in the short and near-term remains a likely better tactic.
Sideways price action will certainly include movements higher intraday.
But looking for slightly lower action may be the preferred speculative route from wagers today.
Brazilian Real Short Term Outlook:
Current Resistance: 5.0370
Current Support: 5.0305
High Target: 5.0450
Low Target: 5.0160
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