USD/BRL Spikes, Re-Enters Key Range. Ibovespa Losing Momentum?

2019-11-07 02:00:00 Dimitri Zabelin, Analyst

USD/BRL Technical Analysis, Ibovespa Index – TALKING POINTS

USD/BRL jumped over two percent after disappointing Brazil oil auction
The pair is now trading within a familiar congestive range: what next?
Technical signals show Ibovespa upside momentum is starting to fade

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USD/BRL spiked over two percent and re-entered a familiar congestive range between 4.0538-4.1935 after news broke that Brazil’s oil auction failed to generate the level of excitement analysts had forecasted. The move had more to do with capital rushing out of the Brazilian Real than traders flooding the US Dollar from risk aversion. The move marked the biggest one-day rise since August 5, 2019.

USD/BRL Overlaid with Brazilian Real Index

USD/BRL chart created using TradingView

Zooming out to a weekly chart shows the pair is continuing to climb well above the 2011 August uptrend and appears to be in the process of forming an Ascending Triangle continuation pattern. The prior uptrend preceding the consolidation period typically accompanies this kind of chart set up. Looking ahead over a longer time horizon, traders may wait for USD/BRL to break above the 4.1739-4.2126.

USD/BRL – Weekly Chart

USD/BRL chart created using TradingView

The Ibovespa ended the day a little over 0.30 percent lower. This comes as negative RSI divergence is showing that upside momentum for the index is fading. While this may not necessarily precede a turn lower, it does show that enthusiasm pushing it higher is now losing steam. Looking ahead, the pair may test the 106001.35-105319.40 range before potentially flirting with the June 2018 uptrend.

Chart Showing Ibovespa Equity Index