USD/BRL Price Forecast Q4 2020: The Crash Is Not Over For the BRL
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- Technical Analysis
- The price has left the 20 SMA behind since October
Brazil is one of the BRICK emerging economies and as such, its currency has been on a constant decline, comparable to the decline in the Russian Ruble or the Indian Rupee. USD/BRL was trading at around $ 1.50 a decade ago, but in May this year it reached $ 6, after surging $ 2 in the first several months of this year, as increasing global tensions and the covid situation turned the sentiment massively negative.
Risk sentiment took a big hit, sending emerging market currencies diving lower. The risk sentiment improved somewhat during summer and this pair retreated lower below $ 5, but buyers have come back into play and the price in USD/BRL is heading back up for $ 6, so we think that we will see record highs again in USD/BRL.
Current USD/BRL Price: $
Recent Changes in the USD/BRL Price
|Period||Change ($)||Change %|
Factors Impacting USD/BRL
Both sides of this pair have been subject to high volatility in 2020. The US Dollar has been massively affected by the coronavirus outbreak at first in spring and then the post lock-down situation. The US presidential elections which we covered in our calendar section and the aftermath are also a big factor for the Buck. The Brazilian Real is more prone to the risk sentiment, as mentioned above. That’s the reason for the big surge early this year in USD/BRL. Brazil is also a major exporter of commodities, which have also been under pressure, giving the BRL another reason to decline. The trade surplus of Brazil should be a positive factor for the Real, but as it is the case with other emerging markets, a higher inflow of foreign currency doesn’t help the home currency much.
|USD/BRL Forecast: Q4 2020||USD/BRL Forecast: 1 Year||USD/BRL Forecast: 3 Years|
|Price: $ 5.20 – $ 5.30
Price drivers: US Elections, Covid-19, Risk Sentiment
|Price: $ 5.70 – $ 6.00
Price drivers: Market Sentiment, Inflation, BCB, Post Covid-19
|Price: $ 7.00 – $ 7.50
Price drivers: Inflation in Brazil, Economic recovery, Developing markets, global politics.
USD/BRL Live Chart
USD/BRL Price Prediction for the Next 5 Years
Fundamentals Favour the USD Over the BRL
All economies around the globe took a major hit during the coronavirus lock-down months and emerging markets were most vulnerable, since they are sensitive to risk sentiment, as cash flows out of these countries in difficult times. Hence the surge from around 4 at the beginning of the year to 6 until May. The US economy has been recovering well since the reopening in May and it continues to broaden the recovery, as fundamentals have shown, which is the reason for the bullish trend in USD/BRL since the middle of June, while the USD has been quite bearish against other currencies from non-emerging markets.
So, the situation for the emerging markets doesn’t look good, especially now that the coronavirus restrictions are increasing again and in many places we are seeing more lock-downs. This is hurting the risk sentiment again in financial markets, which should weaken emerging market currencies further. The central bank of Brazil BCB cut its benchmark interest rate by 25 basis points to a record-low 2.00% in August, saying that they can’t do much more with monetary easing. That sounds positive for the BRL in the short term, since they won’t ease again anytime soon, but they also are very limited in what further steps they can take to fight another economic downturn due to lock-down 2.0. The US presidential election week was quite bearish for the USD, with all the risks associated with these particular one. But once the uncertainty is over, USD/BRL will resume the bullish trend again.
Technical Analysis – Will MAs Hold As Support For USD/BRL?
USD/BRL surged higher to 6 in 2020
USD/BRL was trading below parity in the 1990s, but jumped above 2 in 1999 during the crisis in Japan and emerging markets. The surge continued until 2002, as this pair reached 4, being supported by the 20 SMA (grey) on the monthly chart. From 2002 until the global financial crisis GFC in 2008, the trend turned bearish for USD/BRL and the 20 SMA turned from support to resistance. During the GFC we saw a jump from 1.50 to around 2.50, but the 100 SMA stopped the surge and the price retreated back down to 1.50s, where this pair has formed a support zone. Since 2011 though, this pair has been bullish, partly due to the USD which has been increasing and partly due to the decline in all emerging market currencies. Moving averages turned into support after being broken, with the 200 SMA (purple) first, then the 50 SMA (yellow) and finally the 20 SMA when the trend started to pick up pace.
Will the the price bounce off the 20 SMA and uptrend resume again soon?
The trend has picked considerable pace since 2014, as seen on the weekly chart above. From 2014 until 2015 this pair surged from around 2 to 4.20. USD/BRL retreated down but moving averages turned into support in the weekly, particularly the 200 SMA (purple). A triangle was forming as moving averages were pushing the price up, while the resistance area was holding until the beginning of this year. The coronavirus breakout sent emerging market currencies diving lower and USD/BRL surged from 4 to 6, although it didn’t break above the 6 level. During May we saw a pullback lower, as the USD turned massively bearish. But the pullback here was not as severe and once the 20 SMA (grey) caught up the bullish trend resumed again. This suggests that the Brazilian Real is really weak and we will see this pair making more new highs once the USD decline ends. The election week sent the USD tumbling again and USD/BRL had a major bearish week, but the 20 SMA is still standing below the price, so another bounce off this moving average is probable some time soon, when the US elections end.