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The dollar has rallied a bit against the Brazilian Real gaining about 80 basis points during the trading session on Thursday as we continue to see a lot of upward momentum for the greenback as interest rates in America have been extraordinarily high, but really, what you need to pay the most attention to in this particular pair is the Brazilian economy. Ultimately, money is flowing out of places like Brazil right now, and in fact, the entire BRICS block is struggling.
The market is most certainly supported at this point, down at the 5.90 level, but also, I believe, will continue to see plenty of support above there and I think when you look at this, you have to assume that sooner or later, the US dollar will try to get back to 6.3 Reals above.
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If we were to turn around and break down below the 5.90 Real level, then maybe, just maybe you have some type of breakdown and change in fortunes, but right now it just looks far too bullish to think that shorting is possible. All things being equal, the fact that we are at the 50-day EMA means the technical traders are probably paying close attention to this pair. It has rallied rather significantly over the last year or so, but it is not an overextended rally, so if the US dollar picks up any strength against other currencies, smaller ones like the Brazilian real won't stand much of a chance.
Ultimately, it's a matter of the US dollar being like a wrecking ball for most emerging market currencies, and I do think that will probably end up being the case going forward, including with the Brazilian Real. I have no interest in trying to short the US dollar against emerging market currencies, so if we were to see this pair break down, I would probably be looking to short the US dollar against larger more established currencies.
EURUSD Chart by TradingView
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