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USDBRL Extends Sell-Off, Down 2.65%

BRAZIL
  • The hawkish intentions form the BCB are playing out with some aggressive moves in the currency. USDBRL breaking multiple levels of short-term support and fast approaching the 20-day EMA at 5.3366.
  • Interesting moves in Brazil DI curve today. Front end local swap rates are under pressure but the back end has been rallying with swap rates seen between 10-15 basis points lower.
  • The extent to which a hawkish BCB may make the Real more attractive may explain some of the moves, underpinned by broader demand for Brazilian fixed income, which would be most likely seen in the belly/longer dates.
  • Interesting to note, USDBRL options volumes well ahead of average for this time of day, with firm demand for USDBRL puts driving the uptick in activity. Close to $5 in puts have traded for every $2 in calls so far today.
    • Some of the larger legs crossing this morning have been consistent with a sizeable 4.9250/5.1250 put spread, a position that eyes an end-February expiry and breaks even on a move below ~5.10 in USD/BRL
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