BRAZIL: Breach of Key 50-Day EMA Resistance Would Undermine USDBRL Bearish Tone
Nov-21 11:49
- As noted earlier, local markets reopen today following yesterday’s national holiday amid the encouraging news that the US is expanding exemptions from a 40% tariff for Brazilian food products. However, the risk-off move in markets, amid ongoing concerns relating to AI valuations, may still weigh on sentiment, keeping modest pressure on the real.
- USDBRL maintains a short-term bearish tone, although it has edged up ~1.3% from recent cycle lows at 5.2638. Initial key resistance for the pair is seen just above current levels at 5.3693, the 50-day EMA, above which the 5.40 mark has been a previous pivot point of significance earlier in the year.
- No macro data are due today, with focus next week turning to Wednesday’s IPCA-15 inflation data, where a further moderation in the headline rate should help to ease concerns about inflation risks. For now, the BCB’s continued hawkish rhetoric remains an important anchor for the Brazilian real.
- However, moving into next year, the medium-term outlook is more clouded as the Copom looks set to start an easing cycle sometime in Q1 – potentially with a 50bp move – and risks of further fiscal spending ahead of the ’26 elections increase.
- In other news, Germany has said it will contribute €1bn to Brazil’s Tropical Forest Forever Facility, according to Brazil’s Environment and Climate Change Minister Marina Silva. Earlier this month, total pledges had exceeded €5bn, still well short of the €25bn target.
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OUTLOOK: Price Signal Summary - Bull Cycle In Gilts Extends
Oct-22 11:29
- In the FI space, short-term resistance in Bund futures remains intact for now. The trend outlook is bullish following recent strong impulsive gains and sights are on the next key resistance at 130.80, the Jun 13 high. Clearance of this level would strengthen the bullish condition. Note that the contract is overbought, a deeper pullback would allow this condition to unwind. Initial key support is 129.30, the 20-day EMA.
- A bull cycle in Gilt futures remains intact and today’s gap higher strengthens the bullish condition. The contract is through its recent high of 93.17, the Oct 17 high. This confirms a resumption of the uptrend and signals scope for an extension towards 93.95 next, a 1.500 projection of the Sep 3 - 11 - 26 price swing. Note that the contract is overbought, a pullback would allow this condition to unwind. A key support to watch lies at 91.65, the 20-day EMA. Initial support lies at 93.17, the Oct 17 high.
CHINA-EU: EU Preparing Responses To Rare Earth Restrictions: BBG
Oct-22 11:25
Bloomberg reporting on potential EU responses to China's rare earth restrictions:
- "The European Union is working on trade options to counter China’s planned export controls on critical raw materials should the bloc fail to reach a diplomatic solution with Beijing."
- "The European Commission is preparing a list of trade measures by the end of the month that can later be deployed against China to boost its negotiating leverage, according to people familiar with the matter. The commission is also developing a plan to protect critical supplies in the short-term and secure other sources. "
- "The issue will likely be addressed at an EU leaders’ summit in Brussels this week, though the commission wants to avoid a discussion on specific measures, said the people, who spoke on the condition of anonymity. They declined to say what trade options the EU could consider, citing the sensitive nature of the matter."
OPTIONS: Larger FX Option Pipeline
Oct-22 11:17
- EUR/USD: Oct23 $1.1515-25(E1.1bln), $1.1555-65(E1.3bln), $1.1575(E1.2bln), $1.1650(E1.1bln), $1.1670-80(E1.0bln), $1.1750-70(E2.8bln); Oct24 $1.1500-20(E1.2bln), $1.1635-50(E1.1bln); Oct27 $1.1520-35(E1.2bln), $1.1670-80(E1.1bln), $1.1700-10(E1.1bln)
- USD/JPY: Oct24 Y150.00($2.0bln), Y151.00-20($1.4bln)
- AUD/USD: Oct23 $0.6585-00(A$1.1bln); Oct24 $0.6450(A$1.6bln); Oct27 $0.6490(A$1.8bln)
