Most trading has been due to the interest rate differential in the Forex markets, so it is likely that we will continue to see this market trade in its realm.

The US dollar tried to rally a bit on Friday but gave back the gains to show signs of hesitation. The US dollar has been trying to build up a little bit of momentum to try and turn things around against the Brazilian real, which makes sense considering that a lot of the soft commodities are starting to hit a bit of selling pressure.

Keep in mind that Brazil is considered to be an emerging market, and we need a certain amount of “risk-on” to get the real to continue to strengthen. The market has also been following the fact that interest rates in Brazil are higher, and they look as if they may continue to do so. The Federal Reserve is starting to tighten a bit, but the market is oversold, to say the least. The 4.58 level underneath is going to continue to be looked at as potential support, and it is possible that even if we break down below there the 4.50 level will offer support as well.

On the upside, the 4.80 level offers resistance, and if we can break above there is likely that we could continue to go higher. The market breaking that level opens up the possibility of a move to the 5.00 level over the longer term. Keep in mind that the 50-day EMA is also in the area and dropping significantly, so I think that should be an area of resistance as well.

A lot of this is going to come down to risk appetite, but you should also keep in mind that the US dollar has been falling for so long that even though we had seen the US dollar strengthen against almost everything else. Most trading has been due to the interest rate differential in the Forex markets, so it is likely that we will continue to see this market trade in its realm. Ultimately, anything between here and 5.00 that shows signs of exhaustion could continue the longer-term trend, but in the short term, it looks as if we are trying to recover a bit. Ultimately, if we turn around and break down below the 4.50 level, then we could fall rather drastically.

At this point, I do not have any interest in buying the US dollar against the Brazilian real, although I am very interested in buying the US dollar against multiple other currencies.

The US dollar initially rallied against the Brazilian real on Friday, testing the 4.80 BRL level. This is an area that previously has been resistance, so it does make a certain amount of sense that it would act as resistance again.

The candlestick has formed a shooting star, and if we break down below the bottom of the candlestick, then it should be a nice continuation of the overall downtrend that we have seen. After all, interest rate differentials continue to favor Brazil, not to mention the fact that Brazil is a major exporter of soft commodities, something that has performed quite well over the longer term. After all, as inflation rises, certain commodities will continue to strengthen.

When you look at this chart, pay attention to the fact that the 4.58 level has caused a bit of a bounce. Now that we are trying to roll over again, that might be the short-term target. Underneath there, then we have the psychologically important 4.50 BRL level, something that I think would cause a little bit of a psychological bounce. Alternately, if we can break above the 4.80 BRL level, we could get a bit of a recovery. In fact, we could rally all the way back to the 5.00 BRL level within reason. The 50-day EMA is sitting just above there and is grinding lower, so it could happen to be a major resistance barrier as well.

This is a market that has been in a downtrend for quite some time, so every time it rallies you have to look at it as a potential opportunity to pick up the Brazilian real “on the cheap.” While the US dollar has been very strong against most other currencies, the Brazilian real has the benefit of being an agricultural exporter with higher interest rates. Furthermore, the Brazilian real has been shellacked until recently, due to the fact that they had a massive amount of coronavirus infections. As that goes away, and fears of the pandemic dissipate, that also helps some of these emerging market currencies that had been such punching bags during that issue. At this point, I do not have any interest in buying the US dollar against the Brazilian real, although I am very interested in buying the US dollar against multiple other currencies.

The next logical target would be somewhere near the 4.50 BRL level, an area that has been important on longer-term charts.

The US dollar has broken below the 4.70 BRL level during trading on Friday, as it continues to fall against a lot of emerging market currencies. At this point, the interest rate differential continues to favor Brazil, even though we have seen a massive move in the United States. The market has been in a significant decline for some time but then went sideways near the 4.75 level. It now appears that we are ready to continue going lower.

At this point, the next logical target would be somewhere near the 4.50 BRL level, an area that has been important on longer-term charts. Rallies will more likely than not end up being thought of as an excuse to start selling at the first signs of exhaustion, and therefore I do not trade rallies for anything other than a better entry to the downside. In fact, it is not until we break above the 5.08 real level that I would consider going long, and therefore I think what we are looking at is a situation where rallies will continue to get sold off.

The market has been rather nasty as of late, as you can see we have had a couple of very steep declines. It looks like we are going to continue that case, which in this market may not be as big of a surprise considering that it is a relatively thinly traded market. This is not like the Euro, which can spend quite a bit of time choppy and back and forth against the greenback. Because of this, this may fall further than we anticipated but like I said previously, the 4.50 level is an area where I think you would see a little bit of psychology come into the market.

The 50 Day EMA is crossing the previously mentioned 5.08 real level and is starting to go much lower, which of course is a bit disconcerting as well, as we have seen so much in the way of shorting. The Brazilian real of course is highly sensitive to soft commodities such as coffee and sugar, so pay close attention to those markets as you trade going forward. The US dollar continues to be very noisy against various currencies, showing a real mix of attitudes and appetite as far as risk is concerned.