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BRAZIL: USDBRL Extends Losses On The Week To 2.7%

BRAZIL
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  • After falling significantly yesterday, USDBRL has extended losses in recent trade, with the pair briefly hitting a new weekly low of 5.9108. The move leaves USDBRL 0.4% lower on the day, taking losses on the week to 2.7%. Yesterday’s clear break below the 50-day EMA signals scope for a deeper retracement and opens 5.8675, the Dec 12 low. Initial resistance is at 6.0616, the 20-day EMA.
    • While BRL will remain sensitive to developments from the US administration’s trade policy near-term, fiscal and monetary policy developments will also still be key, with Chief of Staff Rui Costa saying this week that the government’s income tax exemption remains a priority for Congress.
    • Meanwhile, IPCA-15 inflation data tomorrow will be the last ahead of next week’s Copom meeting, but are unlikely to have much bearing on the interest rate decision, with another 100bp hike on Jan 29 widely signalled and expected.
    • Nonetheless, analysts expect headline inflation to slow to 4.36% y/y in the first half of January, which BBVA says would be a significant decline from 4.71% previously and a welcome sign that inflation is returning below the upper limit of the BCB’s target band.
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  • After falling significantly yesterday, USDBRL has extended losses in recent trade, with the pair briefly hitting a new weekly low of 5.9108. The move leaves USDBRL 0.4% lower on the day, taking losses on the week to 2.7%. Yesterday’s clear break below the 50-day EMA signals scope for a deeper retracement and opens 5.8675, the Dec 12 low. Initial resistance is at 6.0616, the 20-day EMA.
    • While BRL will remain sensitive to developments from the US administration’s trade policy near-term, fiscal and monetary policy developments will also still be key, with Chief of Staff Rui Costa saying this week that the government’s income tax exemption remains a priority for Congress.
    • Meanwhile, IPCA-15 inflation data tomorrow will be the last ahead of next week’s Copom meeting, but are unlikely to have much bearing on the interest rate decision, with another 100bp hike on Jan 29 widely signalled and expected.
    • Nonetheless, analysts expect headline inflation to slow to 4.36% y/y in the first half of January, which BBVA says would be a significant decline from 4.71% previously and a welcome sign that inflation is returning below the upper limit of the BCB’s target band.