Yesterday’s trade saw USD/BRL within the range of 2.4590-2.5225. The pair closed at 2.4613, losing 2.43% on a daily basis. This has been the most considerable daily loss since September 18th 2013.
At 9:52 GMT today USD/BRL was down 0.01% for the day to trade at 2.4615. The pair touched a daily low at 2.4609 at 9:47 GMT.
Fundamentals
United States
FOMC policy decision
The Federal Open Market Committee (FOMC) will probably keep its benchmark interest rate unchanged within the range 0-0.25% for a 46th consecutive meeting. In addition, the FOMC members will probably reduce the pace of monthly asset purchases by $15 billion to exit the Quantitative Easing cycle, according to the median forecast by experts.
The minutes of Federal Open Market Committee meeting, conducted in September, revealed that policymakers expressed concerns over recent appreciation of the US dollar and the effects it might have on economic growth and inflation. According to extracts from the minutes: ”During participants discussion of prospects for economic activity abroad, they commented on a number of uncertainties and risks attending the outlook. Over the intermeeting period, the foreign exchange value of the dollar had appreciated, particularly against the euro, the yen, and the pound sterling. Some participants expressed concern that the persistent shortfall of economic growth and inflation in the euro area could lead to a further appreciation of the dollar and have adverse effects on the U.S. external sector. Several participants added that slower economic growth in China or Japan or unanticipated events in the Middle East or Ukraine might pose a similar risk. At the same time, a couple of participants pointed out that the appreciation of the dollar might also tend to slow the gradual increase in inflation toward the FOMCs 2 percent goal.
In their discussion of the appropriate path for monetary policy over the medium term, meeting participants agreed that the timing of the first increase in the federal funds rate and the appropriate path of the policy rate thereafter would depend on incoming economic data and their implications for the outlook. That said, several participants thought that the current forward guidance regarding the federal funds rate suggested a longer period before liftoff, and perhaps also a more gradual increase in the federal funds rate thereafter, than they believed was likely to be appropriate given economic and financial conditions.”
Massive bond purchases tend to pressure longer-term interest rates and also devalue the national currency. Scaling back these purchases has the opposite effect on the dollar. Therefore, in case the central bank’s policy makers cut the monthly asset purchases, this would certainly bolster demand for the greenback. The FOMC will announce its official decision on policy at 18:00 GMT.
Brazil
Monetary policy decision
The Central Bank of Brazil’s Monetary Policy Committee (COPOM) will probably leave the benchmark interest rate (overnight lending rate) without change at 11% at its policy meeting today, according to the median forecast by experts. The overnight rate was at a record low level of 7.25% in October 2012, while in April this year the rate was raised by 0.25% to the current 11%. During the period April 2013-April 2014 the central bank raised the key rate nine times, in order to ease inflation pressure, given that economic growth remains frail. Brazilian economy shrank 0.6% during the second quarter of the year, as investment and government expenditures decreased. The annual inflation rate in the country rose to 6.75% in September from 6.51% in August, supported mostly by a surge in prices of meat. This has been the highest rate of consumer inflation since October 2011.
Short-term interest rates are of utmost importance for the valuation of national currencies. In case the Central Bank of Brazil is hawkish about inflationary pressure in the economy and, thus, decides to introduce another rate hike, this will provide support to the real.
The decision on policy is due to be announced at 22:30 GMT.
Pivot Points
According to Binary Tribune’s daily analysis, the central pivot point for the pair is at 2.4809. In case USD/BRL manages to breach the first resistance level at 2.5029, it will probably continue up to test 2.5444. In case the second key resistance is broken, the pair will probably attempt to advance to 2.5664.
If USD/BRL manages to breach the first key support at 2.4394, it will probably continue to slide and test 2.4174. With this second key support broken, the movement to the downside will probably continue to 2.3759.
The mid-Pivot levels for today are as follows: M1 – 2.3967, M2 – 2.4284, M3 – 2.4602, M4 – 2.4919, M5 – 2.5237, M6 – 2.5554.
In weekly terms, the central pivot point is at 2.4759. The three key resistance levels are as follows: R1 – 2.5166, R2 – 2.5592, R3 – 2.5999. The three key support levels are: S1 – 2.4333, S2 – 2.3926, S3 – 2.3500.
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