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Lower Choppy Consolidation and Lingering Caution


The rather tight range of the USD/BRL has largely held, but the Forex pair has begun to display some choppiness which may prove to be a warning signal in the near term.

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The USD/BRL closed near the 4.9870 ratios yesterday and will enter today’s trading session with a cautious air surrounding the Forex pair. Although the USD/BRL has been able to maintain a rather consolidated price range, the currency pair has also begun to show signs of choppiness, perhaps as nervous behavioral sentiment shadows the broad Forex market.

The price range of the USD/BRL the past month has largely been within a value band of 4.9250 and 5.0375 with a few momentary outliers.  Yesterday’s highs however did touch the higher realms of the USD/BRL one-month price range and raises the question as to why. While the USD/BRL did reverse lower from the higher value, it is possible financial institutions are still a bit worried about the potential of the U.S. Federal Reserve to hike the Federal Funds Rate in June. The Fed essentially said last week they will consider pausing hikes to the main borrowing rate, but they are open to the notion of increases to the Federal Funds Rate if inflation remains stubborn.

And this is where speculators may find that potential volatility lurks for the USD/BRL in the near term. Today the U.S. will publish important Consumer Price Index data and if the inflation reports come in higher than anticipated, this could set off a chain of nervous behavioral sentiment reactions in the broad markets that could affect the USD/BRL. The 5.0000 mark may look like a key psychological level, but in reality, it has been challenged numerous times in the past month. It may be a focal point, but the key numbers may be the price levels of 4.9250 and 5.0375. If the rather consolidated price range of the USD/BRL suddenly is penetrated, this could cause volatile results.

  • A lower-than-expected inflation outcome via the CPI numbers today could provide additional impetus for selling the USD/BRL and potentially challenging lows.
  • However, higher than-anticipated inflation figures from the U.S. today might spark some rather intriguing buying, and if the 5.0380 ratio is broken higher some traders may suspect the 5.0500 to 5.0700 marks could be targeted. 

The USD/BRL has produced a rather calm trading range in the past month and speculators have likely become rather accustomed to the polite values. Traders should be on the lookout for the potential of choppiness to turn into violent price action if the U.S. inflation numbers surprise today. Because of the Federal Reserve’s rhetoric last week which stated they will take a reactionary approach to interest rates via inflation results, traders need to practice solid risk management and be prepared for consolidated prices to potentially vanish abruptly.

Current Resistance:  5.0025

Current Support:  4.9775

High Target: 5.0730

Low Target:  4.9170

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