USD/BRL Outlook Bearish as Pair Plateaus. Pullback Ahead?

2019-11-13 23:20:00 Dimitri Zabelin, Analyst

US Dollar, Brazilian Real, USD/BRL – TALKING POINTS

USD/BRL reaching edging closer to retesting 14-month high
Recent price action suggesting upside momentum is waning
If pair experience pullback, where is next big support level?

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USD/BRL has skyrocketed over 4.50 percent following the unsuccessful Brazil oil auction that served as the fundamental catalyst behind the selloff in the Brazilian Real. Along its ascent, the pair re-entered a familiar range between 4.0538 and 4.1935. The upper bound marks the highest exchange rate the pair has had since August and before that September 2018.

USD/BRL – Daily Chart

USD/BRL chart created using TradingView

Failure to break above resistance again could disappoint traders and result in an aggressive selloff but may bottom out around the lower bounds of the congestive range at 4.0538. Traders may wait to add additional exposure until a clear directional preference is given if the pair declines after failing to break above resistance.

Zooming out to a weekly chart supports the case for a short-term bearish reversal as negative RSI divergence signals that upside momentum is fading. What traders will be closely watching is the extent of the pair’s possible decline. If the pair tests and rebounds from the October 2018 uptrend, buyers may take the opportunity to capitalize on a resumption of the dominant uptrend.

USD/BRL – Weekly Chart

USD/BRL chart created using TradingView

However, a break below it with confirmation opens the door for the pair to test the August 11 support zone, an area not reached since January 2018. If the pair broke below this level with follow-through, it would mark a tectonic shift in the pair’s overall trajectory and would possibly result in an aggressive selloff. However, both technically and fundamentally, the case remains for an overall bullish outlook for USD/BRL.