Following last years elections results BRL recovered against the US dollar , but despite a series of positive indicators, reports and overall better economical mood BRL failed to follow towards the target of the previous pattern, instead, encouraged by yet another corruption scandal, the price has been hiking strong, and has the potential to trigger a massive pattern. Such a massive loss of value is not unheard of in South America, and has as a matter o fact befallen a neighboring country - Argentina - a few years ago.
Scenarios are as follow:
Bullish for BRL:
If the immediate support at 3.91 breaks, the bottom of the channel will be tested.
If the bottom of the channel breaks we are likely to revisit 3.6 with the potential to continue towards the Head and Shoulders pattern.
Bearish for BRL:
If the resistance at 4.009 breaks we are very likely to test the top of the channel and possibly the ATH.
Even if 4.009 does not breaks on the next week, but the bottom of the channel holds again, we are likely testing 4 and breaking it on following week
The 4.009 lvl is very important and strong, as it was the previous ATH from 2002.
If BRL breaks it and sits on it, the bigger scenario of the Cup and Handle becomes more likely
Trade accordingly for each scenario.
I favor the bearish scenario with yet another successful support of the lower channel, and would expect us to test 4.20 within the next 3 weeks.
Until there are fundamental reasons for a bullish shift, I don't expect BRL to react, but only get mitigated by Brazilian Bank intervention (Swaps)