- The USD/BRL pair continued soaring, reaching its highest point since October 26.
- The Brazilian real has been plunging after the recent Brazilian election.
- The pair has formed a golden cross pattern, pointing to more gains.
- 15.6000 BRL Bullish targetRecent high and key resistance level targeted by bulls
- 25.2261 BRL Prior peak breakout · Key levelHighest point in June, August, and September confirming bullish outlook
- 35.2200 BRL Reversal targetPotential downside level if the pair suffers a big reversal
- 45.3102 BRL Pullback low · SupportLevel the pair pulled back to before rebounding
- 55.1000 BRL Double-bottom neckline · Key levelKey resistance neckline of the double-bottom pattern broken during rally
- 64.9600 BRL Double-bottom low · SupportDouble-bottom pattern formed on October 26 before the election
TradingView Lightweight Charts™ · Yahoo Finance data
The USD/BRL exchange rate has been in a strong rally and recently formed a golden cross as the US dollar strengthened and investors reacted to Brazil’s latest election. The pair surged from 4.96 on October 26 to a high of 5.60, then pulled back to 5.3102 before rebounding to 5.5065. Focus now turns to Tuesday’s consumer inflation report.
Brazilian Real Still Reeling After Lula Victory
The Brazilian real has been in a strong downward trend after President Lula won a closely contested election, beating Flávio Bolsonaro, who many experts expected to win.
That victory led to a substantial sale of Brazilian assets, with the iShares MSCI Brazil ETF (EWZ) falling to $32, down by 27% from its highest point in October. Ibovespa, which tracks the biggest Brazilian companies, has also dropped by 28% from its peak.
Investors are worried about Lula’s policies, which include tight regulations and more government spending. Such a move will lead to higher debt and government bond yields. Indeed, data shows that Brazil’s ten-year yield has jumped to 15.145 from the October low of 12.52%.
The USD/BRL pair also jumped after the US published strong jobs report on Friday, which raised the possibility of the Federal Reserve hiking interest rates. The data showed that the economy created 165k jobs last month, while the unemployment rate improved at 4.1%. As a result, odds that the Federal Reserve will hike rates next month have jumped to over 80% on Polymarket and Kalshi.
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The next important catalyst for the USD/BRL pair will be the upcoming US consumer inflation report on Tuesday. Economists expect the data to show that the headline and core inflation softened a bit on a MoM and YoY basis last month.
USD/BRL Has Formed a Golden Cross Pattern
USDBRL chart | Source: TradingView
The daily chart shows that the USD/BRL pair formed a double-bottom pattern at 4.96 before the recent election. It has now soared above the key resistance level of 5.10, the neckline of this pattern.
Also, the pair then soared above the key resistance level of 5.2261, its highest point in June, August, and September this year. Moving above that level confirmed the bullish outlook.
The pair has formed a golden cross pattern as the 50-day and 200-day moving averages crossed each other. Therefore, the pair will likely continue rising as bulls target the key resistance level of 5.60. However, there is a risk that the pair may suffer a big reversal, potentially to 5.22.
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What is your outlook on USD/BRL?
Anonymous · no sign-up · results from the last 30 days · not investment advice