Coming into the new year, the reflationary trade was working quite well. In January, we saw a period of heightened volatility that stressed emerging markets. Brazil was no exception. That said, the weak dollar trend looks likely to resume in the next few months, after the positioning shake-out that we saw in January. Many hedge funds are still on the sidelines and scared to commit capital to risk-assets. They will be forced to do so in March when performance benchmarks come out. EMFX and commodity exporters should continue to perform strongly as the US pursues the largest stimulus package in history. Recently, the USD looks on the verge of breaking out to the upside, though I would much rather fade this move with a tight stop. In Brazil specifically, the likelihood of Selic rates being raised increases the chance of currency appreciation. There are no real organic sellers above 5.40. The risk/reward is for the BRL to rally significantly from here.
Trade active
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Initially move lower has succeeded. We'll take a bit of profit here as the market makes money available to us. Staying short USDBRL as a core trade for now though...
Trade closed manually
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Stopping myself out of this one for now. There is too much headline risk and the broad DXY is making a lower high.
Anyone thinking that they will see under 5/1 again in the next 18-24 months is kidding themselves...
Troublesome rumors are whispering out of Brasilia again, a damaged economy and macro trends are all pointing to a new all-time high coming by mid-year.
Once R$5.85-88 gets passed on volume the next stop will be R$6.50 +/- all on volume.
Unfortunately, Brazil always has one more surprise waiting in the wings and continues to disappoint.
Find out how 35% of the poorer people in Brazil are extremely struggling now. the lower middle class and poor population are "parcelando" paying in the future for FOOD at grocery stores. This cannot last more than 6 months until they cannot pay their bills.
Some are told to stay home and used to get R$600 reals per person per month ($111.71 USD) then it went down to R$300 reals per person per month ($55.86 USD) now NOTHING.
The service industry and temp laborers are struggling and even though restaurants are still open and things are moving the sales are not even close to pre covid-19 times.
Meanwhile, "1st-world countries" are printing money, kicking the debt " CAN" down the street to worry about "another time"
I suggest everyone google their countries, countries, M1 / M2 accounts, and balance ledgers. Then compare what whats when you try to spend your way out of debt problems and negative/declining GDP years.
Trouble is coming.. What type and from who nobody knows but shit is about to hit the fan.. and the smelly mess left over will always be felt the most by the poorest countries.
Stay safe and Happy Trading!
MT-Macro
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@markn thanks for commenting! I don’t think that fundamental thesis will influence the exchange rate. There aren’t many natural sellers of BRL above 5.50. The beauty of markets is there are two sides to every trade, let’s see!
markn
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@MT-Macro, It will be a quick jump soon past 6/1 USD
Happy Trading!
MT-Macro
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@markn, We shall see! I'm remaining tactical for now and trading with a bullish BRL bias. There are certainly some fundamental headwinds to the trade.
markn
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@MT-Macro, i think this week as expected 6/1 +
Lula's news will be BAD !
Anyone thinking that they will see under 5/1 again in the next 18-24 months is kidding themselves...
Troublesome rumors are whispering out of Brasilia again, a damaged economy and macro trends are all pointing to a new all-time high coming by mid-year.
Once R$5.85-88 gets passed on volume the next stop will be R$6.50 +/- all on volume.
Unfortunately, Brazil always has one more surprise waiting in the wings and continues to disappoint.
Find out how 35% of the poorer people in Brazil are extremely struggling now. the lower middle class and poor population are "parcelando" paying in the future for FOOD at grocery stores. This cannot last more than 6 months until they cannot pay their bills.
Some are told to stay home and used to get R$600 reals per person per month ($111.71 USD) then it went down to R$300 reals per person per month ($55.86 USD) now NOTHING.
The service industry and temp laborers are struggling and even though restaurants are still open and things are moving the sales are not even close to pre covid-19 times.
Meanwhile, "1st-world countries" are printing money, kicking the debt " CAN" down the street to worry about "another time"
I suggest everyone google their countries, countries, M1 / M2 accounts, and balance ledgers. Then compare what whats when you try to spend your way out of debt problems and negative/declining GDP years.
Trouble is coming.. What type and from who nobody knows but shit is about to hit the fan.. and the smelly mess left over will always be felt the most by the poorest countries.
Stay safe and Happy Trading!