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Quiet Trading Days will finish with Loud Volatility

The USD/BRL has been in a tight price range since the 18th of April, and the calm speculative trading ground is likely to turn into a volatile landscape in the next handful of hours.

The USD/BRL finished yesterday’s trading near the 5.0360 ratios and continued to move in a rather tight range that has been part of the currency pair’s speculative ‘air’ the past couple of weeks. Traders who have grown used to the calm trading waters of the USD/BRL should prepare for volatility to develop today. The U.S. Federal Reserve will release its FOMC Statement in a handful of hours and the rhetoric the U.S central bank delivers is sure to rattle the USD/BRL. Traders should expect to see a gap upon the opening of the currency pair today too.

Financial institutions have certainly anticipated and digested an interest hike from the Federal Reserve to be announced today.  If the U.S. central bank doesn’t announce a 0.25% increase today it would be a shock. Yes, U.S. medium and small banks are under financial pressure, but the Fed has shown little in the way of stopping its aggressive interest rate policy for the moment. What financial institutions do not know, is what the Fed will say about the potential for an interest rate hike in June.

The tight USD/BRL has certainly been trading in a calm manner, but traders should be ready for the consolidated price range to disappear. If the Federal Reserve sounds more aggressive than expected, this could spur on buying of the USD/BRL, and the 5.1000 to 5.1500 levels could suddenly become challenged upwards. If the U.S. central bank says it will pause or become more dovish moving forward a test of 4.9600 to 4.9000 could develop quickly. The question is which direction the U.S. Federal Reserve will lean towards. Recent U.S. data has shown that inflation remains rather troubling in the States.

  • Traders holding positions of the USD/BRL who have become relaxed due to the rather tranquil speculative market will need to prepare for the price range to change. Risk management will be essential leading up to the FOMC Statement.
  • Price velocity will certainly become dangerous and traders who are conservative should wait until the Federal Reserve has finished speaking. 

The U.S. Federal Reserve is known to be debating within its membership the need to continue to increase the Federal Funds Rate. Borrowing money for businesses has grown more expensive and this is causing nervousness in financial institutions. The USD/BRL will be affected by the Fed’s policy speech this evening and the consolidated trading which existed for the past two weeks will suddenly become volatile over the near term.

Current Resistance:  5.0515

Current Support:  5.0235

High Target: 5.1725

Low Target:  4.9010


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