miroslava.micunkova's picture

What the future holds for USDBRL heading into the presidential election in October?

Amidst escalating political tensions ahead of the presidential election planed for 05 October, BRL has lost close to 7% this month versus the dollar, reaching fresh 7-month lows. However, a falling BRL also reflects an overall USD appreciation, backed by an expectation of rising rates and nearing the end of bond purchases.

From the long-term technical perspective, USDBRL is looking at a major bull market since hitting all-time traded low at 1.5300 in late 2011. Previous USDBRL rally peak was established at 2.4540 in August last year, and we see this being retested before a correction lower. Applying the Elliott Wave ratio analysis, the correction should retrace 61.8% of D wave (see chart), indicating a return to 2.2873-2.3067. From there we should see the rally resume to eventually break-up beyond the 2.4490-2.4540 to reach 2.7500 in coming months. 

                                                                                (Click on the chart to enlarge)