After touching a low of nearly 5.0000 on the 15th of December, the USD/BRL has incrementally trended higher as December gets ready to come to a close. Before the upward trend developed, however, the USD/BRL did enjoy a solid bearish run lower which started at the end of October. A high of nearly 5.8000 was tested then, which was followed by a significant reversal lower.
The choppy nature of the USD/BRL makes it a difficult Forex pair to trade unless superior risk management techniques are used and a little luck shines upon the trader. Stop losses are important, but the frequency of short-term reversals within the USD/BRL makes it dangerous to place the stop losses too closely to the current price vicinity of the Forex pair. Traders have to be careful to use conservative amounts of leverage if they are inclined to use wider stop loss ratios, unless they have deep pockets to stay in the game and pursue trends which can take time to develop.
The current price of the USD/BRL still finds the Forex pair testing its lower depths. The recent ability of the USD/BRL to traverse higher since the middle of December may be viewed as a ‘false event’ by some speculators who suspect that lighter holiday trading may be a factor with the current values of the pair as December comes to a close. However, as experienced traders frequently are forced to admit, the market is always right, and even though a bearish trend appears to still have a fighting chance of re-igniting, the recent reversal higher must be taken into account.
Speculators need to monitor the USD/BRL’s current price vicinity of 5.2000 carefully. If the USD/BRL can generate bearish momentum downward and test the 5.1100 ratio and sustain lower values, it will signal the potential for further erosion and a test of the 5.0000 juncture. However, speculators cannot be faulted for worrying about the current price of the USD/BRL and suspecting that another test of the 5.3000 mark higher is going to ensue.
Global trading sentiment is rather strong at this juncture and it appears that behavioral sentiment will remain steady in January, which helps underscore the potential for the USD/BRL to resume its bearish trend. Resistance levels above have also proven adequate the past two months and the 5.3900 mark has proven tough to penetrate higher since the tail end of November. A steady resistance level may offer traders who can use wide stop losses an opportunity to pursue additional bearish momentum. Traders may want to be sellers of the USD/BRL only when slight reversals higher have taken place by using limit orders.
Intriguingly, the USD/BRL has only exhibited its bearish trend in earnest the past couple of months. The Forex pair has not enjoyed a major correlation with many of the other emerging currency pairs trading against the US dollar. Speculators may believe that the USD/BRL has some additional room to traverse lower. The low of mid-December of nearly 5.0000 may prove attractive for traders who believe that the USD/BRL can resume its downward momentum.
The USD/BRL does trade in a rather consolidated manner and its moves are often not volatile. However, as the holiday season ends and January begins, some sudden gyrations could occur. Traders who believe the USD/BRL will start to demonstrate its bearish trend which started the end of October once again cannot be faulted, but they should approach the Forex pair with some caution.
Brazilian Real Outlook for January:
- Speculative price range for USD/BRL is 4.8900 to 5.5000
- Support at 5.1100 may prove crucial if this mark is broken lower and sustained and a test of 5.0000 could develop with additional further downside possible.
- Resistance at 5.3900 appears strong, but if broken higher a test of the 5.5000 level could develop.
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