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USD/BRL Techninal Analysis: Bearish Reversal in Sight?

USD/BRL Techninal Analysis: Bearish Reversal in Sight?

Dimitri Zabelin, Analyst

USD/BRL Technical Strategy: PENDING Short

  • USD/BRL may be forming a Head and Shoulders topping pattern
  • Brazilian politics are likely the biggest factor leading BRL charge
  • Decline may accelerate after daily close below neckline support

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The Brazilian Real has been losing major ground against the US Dollar since the start of the year. However, a convincing Head and Shoulders pattern – a setup likely inspired by Brazilian politics – appears to have emerged and may indicate a bearish reversal for the pair.

The recent tumultuous election that saw the firebrand Social Liberal Party Leader Jair Bolsonaro rise to power boosted the local currency. This in large part has to do with his affirmation of central bank independence and appointment of Chicago School-trained Finance Minister Paulo Guedes. He is an advocate of mass privatization and of reforming the country’s bloated pension system.

USD/BRL Leading to Potential Bearish Reversal

USD/BRL - Daily Chart

A neckline at 3.6861 has provided adequate support despite a brief false breakout in late October. Markets tested – and subsequently retreated – after the pair hit the first shoulder-resistance 3.9363. If the pair break the neckline support, the next possible obstacle may be a support at 3.5843.

If the pair has a daily close below this barrier, the decline may accelerate to the price target at 3.3377. This also happens to be what appears to be former resistance that was tested between June 2017 and April 2018.

Price Target Resembling Former Resistance

USD/BRL - Daily Chart

USD/BRL TRADING RESOURCES

--- Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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