I anticipate that we will go much further over the longer term, and you could even go so far as to draw a bit of a channel that we have been trading in as of late.

• The Brazilian real strengthened a bit against the US dollar as the dollar fell to the 5.27 level during the Friday session.
• There is still a significant support level underneath that should continue to elevate the US dollar, especially once you get closer to the 5.25 level.
• This is an area where we had broken out of previously, so we should see buyers coming in to pick this market.
• The Brazilian real is a commodity currency, which is going to be out of vogue in general right now.

Risk Appetite

This is especially true with the Brazilian real because unlike some other commodity currencies, it does not have the benefit of the developed nation status of places such as Canada, New Zealand, and Australia. In other words, people are much more comfortable investing in a place like Australia or in a business that is based in Québec than in South America. Risk appetite is something that favors the Brazilian real, but right now risk appetite is something that has been decimated.

Furthermore, the 50-day EMA is starting to rally a bit, and it looks like we are trying to get back to a “golden cross” when the 50-day EMA breaks above the 200-day EMA. Once that happens, the market is very likely to go looking to reach the 5.40 level again. Breaking above there then allows for the market to go higher, perhaps opening up the possibility of a move to the 5.60 level. Because of this, it’s likely that we will continue to see plenty of “buying on the dip”, especially as interest rates continue to rise in America. I anticipate that we will go much further over the longer term, and you could even go so far as to draw a bit of a channel that we have been trading in as of late.

When you look at the W pattern that we just broke out of, the “measured move” suggests that we are going to the 6.00 level. The 6.00 level is obviously a large, round, psychologically significant figure, and it’s likely that we see a bit of reaction to that area. If we were to break out from here, it’s not until we break below the 5.00 level that I would be concerned about the upside.

The US dollar initially rallied on Monday but gave back gains rather quickly as the WTI Crude Oil market strengthened. In fact, oil broke out of a major triangle that I have been following, so it does make sense that we would see the Canadian dollar rally as a result. Ultimately, the US dollar losing a little bit of ground made a certain amount of sense anyways, due to the fact that the US dollar was so overbought.

The 1.29 level is an area that has been important more than once, so is not a huge surprise to see that we had a little bit of reaction there, but the fact that we have broken through there does suggest that we could see a little bit of further weakness. This will also be greatly influenced by the oil market, so if we see the crude oil start to take off again, then it is likely that we would see further downward pressure. However, you should also keep in mind that the US dollar is considered to be a safety currency as well, so it does make sense that we could see markets run back toward the greenback. However, we may get a bit of divergence in general, as the two economies are so highly intertwined. That being said, will have to wait and see how this all plays out, but it certainly looks as if we are going to continue to see a lot of noisy behavior.

At this point, you will need to keep an eye on the oil market, interest rates in the United States, and the US dollar’s strength or weakness across the board. The volatility is going to increase before it falls anytime soon, so at this point, it is likely that we will continue to see a lot of noisy behavior, and you need to be very cautious about your position size. I do think that it is only a matter of time before the buyers come back though, because quite frankly we are suffering at the hands of uncertainty, and that breeds demand for US dollars over the longer term. In the short term though, we may have a little bit of a pullback on our hands.