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USDBRL Continues Ascent, Could Target 5.50 Resistance

  • A consolidation session for USDBRL on Thursday resulted in minor gains for the pair and a close around 5.4150. Conditions remain bullish and strong resistance is seen at 5.5000, the 61.8% retracement of the 2021 high/low swing.
  • Relief rally in local swap rates as the belly and long end of the DI curve shifted between 15-20 basis points lower. Brazil's Treasury significantly reduced the offer of so-called LTN and NTN-F fixed-rate notes on Thursday, with the auction announced ahead of its usual time. This had the effect of capping the sell-off, however, fiscal, political and inflationary concerns may to keep local assets on the backfoot.
  • Interestingly, JPMorgan strategists described Brazil stocks as "a good buying opportunity for a short- to medium-term horizon" at current multiples. The spike in Brazil's domestic yield curve is fuelling a selloff in stocks that JPM considers "unreasonable," given the country's bottom-up fundamentals.
  • Today, we have B3 Exchange stock options expiration and BCB's Campos Neto in Sao Paulo meeting with Mambu Brazil representatives followed by Brazilian Banks Association representatives.
  • Of note, Brazilian lawmakers plan to modify the text of the tax reform bill in the next two weeks and attempt a vote on the proposal in the first week of September, Folha de S. Paulo newspaper reported without citing how it obtained the information. (BBG)

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