USD/BRL Forecast: US Dollar Explodes Higher Against Real

• The US dollar has rallied significantly during the course of the trading session on Friday, breaking well above the 5.25 BRL level.
• This is a market that of course is going to measure risk appetite as Brazil is an emerging market, and at the same time, it also will measure South America inflows.
• At this point, it looks like the US dollar is favored mainly due to higher interest rates in America, but now we have to worry about the possibility of the US economy hitting a bit of a speedbump.

We got a couple of negative economic announcements during the trading session on Friday, with the PCE numbers being lower than anticipated, right along with the Chicago inflation figures, thereby suggesting that perhaps the United States is going to slow down. Ironically, when you think about an economy slowing down you think about loosening monetary policy but in the case of the US dollar against an emerging market currency, you have to pay close attention to the idea of whether or not global growth will start to. This could have major implications on economies like Brazil which are essentially export commodity region.

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Bullish

The market remain bullish, now it looks like we are going to try to get to the 5.30 level above, an area that was a major swing high, and I just don’t see how we don’t at least test that area. If we can break above there, then obviously it would be very bullish for the greenback, and probably would be a major “risk off scenario” for a lot of other assets around the world. Underneath, we have a lot of support near the 5.20 level, and then again at the 50-Day EMA which is near the 5.13 level and rising.

Buying on the dips probably makes a certain amount of sense, but I also think that we may also just as easily get a major break out. The US dollar is obviously stronger than the Brazilian real over the last several months, and that may continue to be the case looking at this chart.

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