BRL struggling right now. Next weeks are critical.

All necessary information is on the chart.

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 head and shoulders pattern, instead, encouraged by yet another corruption scandal, the price has been hiking strong, and has the potential to trigger a massive cup and handle 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.

Comment:

So far BRL printed a higher low but failed to make a higher high. On the medium term there appears to be a rising channel - the bottom trend-line of the channel has been tested many times and it has been very supportive so far. On the higher end, right now BRL is printing a double top at 4.009 but finding some support at 3.91

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)

Comment:

BRL failed to break support vs USD at 3.91, apparently consolidating above it. It's now moving towards the top of the channel, next target is likely ~ 4.15 before a retest of ath. So far BRL has shown greater weakness than expected, and if it pops above the channel towards ath it could accelerate. If ath is surpassed there's no roof left and Brazil could very well face a situation like Argentina did years ago. Previous scenarios and resistance/support levels in this TA are still in play.

Comment:

It certainly took it's sweet time but it's slowly progressing up. It didn't quite accelerate once ath was broken, which may either be a result of central bank interference or overall better economic mood in Brazil. But, now there's sustain upwards pressure and it's printing a new ath every other day. There's still a descent chance the market could enter in a price discovery mode and accelerate upward. On politics/fundamental field the Ministry of economy made clear that "Brazilians should get used to a higher exchange rate, and that lowering it was not a priority". So far I see no reason for it not to reach the original target or at least test 5. I wouldn't be surprised if they are intentionally letting it run wild to cover internal debt with funds lended from IMF before reversing the gears. Let's see how it progresses.

Comment:

All targets reached, and continuation started. New political developments and uncertainty continue to unfold, and there's no immediate sign that price discovery will stop. There could be a pullback and consolidation in the short term towards 5.4 - 5.3 area, as the last movements have been intense, but at the same time, both international and national crisis is extreme, which could be enough to prevent pullback.