BRL: Rough Ride Ahead In 2011

With the euro staging something of a relief rally against the US dollar in recent days, we see scope for the Brazilian real to gain modestly relative to the greenback in the very near term. However, with momentum indicators still on the verge of oversold territory, we believe that any appreciation will be short lived, and see little potential for a break through multi-quarter resistance around the BRL1.7400/US$ level. Rather, with rising concerns about the strength of the global economic recovery offsetting confidence in Brazil's domestic growth story, we believe that the unit will continue to fluctuate within its long-standing sideways trend channel for the time being.

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