It's interesting to note that the USDBRL
pair hasn't risen any further despite the route in the Brazilian bond market and the Fed rate hike this week. Of course, both were largely priced into the market. We're currently at one of those crossroads where fundamentals favor further US dollar
strength against the Brazilian real whereas technical analysis
suggests that one should be careful in following the general consensus on this particular market. I find it very interesting that the USDBRL
has remained below its October 2002
highs on a monthly close basis since September despite all the negative news in Brazilian fixed income markets between October and December. That said, I would refrain from exaggerating the downside risk to this pair given that the dips have consistently been bought at around the 3,71/72 handle since October. If the dollar weakens (or the real strengthens) at the start of January with traders initiating new carry trade positions in the EM FX markets, we'll have to see just how things play out before being able to really tell if USDBRL
will eventually break above its resistance.