USD/BRL Holds Near 5.10 as US CPI and Fed Risks Approach

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We see the maintenance of a tight value stance, and financial institutions and traders upon yesterday’s close are left to consider the remaining two days of this week and potential for volatility to appear in the currency pair. The Brazilian Real has correlated to global Forex and now the USD/BRL awaits Friday’s U.S CPI inflation data and next Wednesday’s Federal Reserve FOMC interest rate decision. The ability of the USD/BRL to challenge lower values on Tuesday and see limited upside yesterday leaves the door ajar for more price action within its known range.

USD/BRL Sentiment Remains Cautious Before US Inflation Data

Financial institutions in Brazil have seemingly made themselves comfortable with notions regarding the coming Brazilian election and have been able to re-establish lower values in the USD/BRL. Tuesday’s foray lower however was met with solid conditions yesterday in which buying showed that some may believe the USD/BRL had been oversold. Risk events shadow the Brazilian Real and the potential for dynamic conditions today and tomorrow are abundant.

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However, financial institutions have been showing caution while also demonstrating an ability to correlate results in the Brazilian Real to other major currencies teamed against the USD. Not only are inflation and U.S interest rate concerns hovering over the broad Forex market, but the inability to show any capabilities to end the Iranian conflict are playing a role with existing sentiment. USD centric questions abound regarding a clear outlook as U.S bond yields are elevated and nervousness pervade stock indices.

USD/BRL Holds Below Recent Highs as CPI Nears

The USD/BRL closed around 5.1045 yesterday. On Tuesday before the slide lower the currency pair was near 5.1275, and suddenly found itself traversing near 5.0700. The price action in the USD/BRL did see buying momentum become stronger Wednesday, but the USD/BRL held onto its known realm. In fact the USD/BRL from a technical perspective is maintaining is still maintaining values below its late February ratios.

While the currency pair has moved higher since touching a low of nearly 4.8850 in the second week of May, the USD/BRL has turned in lower results since the middle of August. Sentiment remains a key certainly among financial institutions, but day traders should understand that price velocity is seldom excessive in the USD/BRL. Because of lower volumes and it still being a major currency pair, financial institutions find themselves cautious before major risk events. Tomorrow’s U.S Consumer Price Index data release will effect Forex and the USD/BRL also.

Why USD/BRL Momentum Could Stay Choppy Before the Fed

Speculators have difficult choices ahead if they are trying to simply ride momentum swings. Intraday volatility in the USD/BRL is likely to remain brisk until the publication of the CPI data tomorrow, then some momentum trajectory may be possible.

However, traders also need to be aware that not only are financial institutions bracing for tomorrow’s U.S inflation results, but they are trying to figure out what the U.S Fed will say and do next Wednesday. A lack of clarity remains an issue. While the lows achieved on Tuesday might signal how low the USD/BRL can move if financial institutions feel comfortable, the highs seen near 5.1400 late last week are still nearby.

USD/BRL Price Chart

Rising Energy Costs Could Renew Upside Pressure on USD/BRL

The ability of the USD/BRL to recapture lower ratios is noteworthy and a sign financial institutions see a potential for a stronger Brazilian Real. However, the near-term is likely to remain choppy as interpretations of current conditions remain debated. Higher inflation in the U.S has been digested, but the question is how sticky it will become. If the Fed is forced to admit higher energy costs are not transitory, but a long-term danger, this could cause volatility in the USD/BRL and perhaps higher trajectories to emerge again.

USD/BRL Outlook: Watch for Choppy Reversals Around 5.10

Though the USD/BRL doesn’t have the liquidity of major currency pairs, there is enough firepower within the wagering landscape for retail traders to test their perspectives. The USD/BRL move higher yesterday was solid, but it was not a stark contrast to the previous day’s move upwards after a selloff occurred. The choppy conditions in the broad Forex market may prove attractive to USD/BRL traders near-term.

USD/BRL Short Term Outlook:

Current Resistance: 5.1090

Current Support: 5.1010

High Target: 5.1370

Low Target: 5.0820

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EURUSD Chart by TradingView