Brazilian Real: Downside risks grow above 5.14 against US Dollar – Societe Generale

Societe Generale’s Kenneth Broux highlights that USD/BRL has formed a higher low and is staging a short-term bounce toward its 200‑day moving average near 5.14. The bank notes that a sustained break above this level could open a larger move toward the September highs around 5.20/5.24, while the recent low near 4.99 is seen as short‑term support.

Brazilian Real tests key resistance

"USD/BRL carved out a higher low at 4.94, compared with the 4.88 low recorded in May. A short-term bounce has materialized following this test. The pair is now approaching the 200-DMA near 5.14, which could act as an interim hurdle."

"If USD/BRL establishes itself above 5.14, a larger up move cannot be ruled out towards September high of 5.20/5.24. The low registered earlier this week at 4.99 may serve as a short-term support."

"Market friendly candidate Flavio Bolsonaro has led Lula in every major runoff poll released over the past week by 2-6pp, raising expectations of a more fiscally conservative policy mix that could compress risk premia, attract bond inflows and further support BRL."

"BRL rally loses steam ahead of presidential runoff. The BRL is up 2.1% MTD on a total return basis, while MXN has been the main LatAm laggard (-1.6%), as investors increasingly favour markets where politics and carry are moving in the same direction."

"The BRL rally was cut short yesterday as the Senate approved legislation to shorten the workweek without reducing pay, which may benefit Lula in the 25th October runoff vote. The macro data have also tilted in Brazil's favour, with retail sales rebounding 0.8% m/m in August after a 0.8% decline in July."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)