BRL Under Pressure

As we highlighted in our Latin America Daily Financial Alert last week, we believe that downside pressure on the Brazilian real is building, and we see room for further near-term weakness for the unit. Having failed to break key technical resistance on several occasions throughout Q409, we see the real moving inside its current trading range, which is implying a gradual depreciatory trajectory for the unit over the coming months. In the near term, we are targeting BRL1.8000/US$, and could see the real test the lower band of its current trading rage near BRL1.8200/US$ thereafter. A break here would be a highly bearish signal, prompting us to adopt a more pessimistic outlook for the currency.

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