USD/BRL retakes the 20-day SMA after Brazilian inflation data

• USD/BRL rose to a high near 4.9680 and then settled at 4.9450.
• Brazilian IPCA from August showed no surprises.
• Markets are cautious, awaiting inflation figures from the US on Wednesday.

The USD/BRL gathered momentum in Tuesday’s session after the BRL decline after the release of the Brazilian inflation figures from August. On the USD side, it is recovering ground after trading soft on Monday while markets seem cautious ahead of Wednesday’s inflation readings from the US. 

The Instituto Brasileiro de Geografia e Estatistica revealed that the IPCA inflation advanced 0.23% MoM and matched expectations. 

Recent upward movements of the pair may be attributed to recent rate cuts by the Bank of Brazil’s Monetary Policy Committee (COPOM), and markets are expecting the bank to cut further the target rate next week by 50 basis points to 12.75% which could exacerbate the downside for the Brazilian currency.

On the other hand, the USD is trading firm against its rivals, driven by a cautious market mood and US Treasury yields remaining high. That being said, Wednesday’s Consumer Price Index (CPI) figures will be crucial for the Greenback’s and bond price dynamics as they will play a big rol in modelling expectations of the next Federal Reserve (Fed) decisions. As for now, a pause in next week’s meeting is practically priced in while there's still a 40% chance of one last interest rate hike in either December or November, according to the World Interest Rate Probabilities tool. 

USD/BRL Levels to watch 

 Observing the daily chart, USD/BRL displays a neutral to bullish technical outlook for the short term as the bulls gain momentum. The Relative Strength Index (RSI) demonstrates a favourable upward trend above its midline, while the Moving Average Convergence (MACD) shows stagnant red bars. Additionally, the pair is above the 20 and 100-day Simple Moving Averages (SMAs), but below the 200-day SMA, suggesting that the bulls are in command over the bears on the bigger picture.

 Support levels: 4.9350 (20-day SMA), 4.9330, 4.9150.

 Resistance levels: 4.9680, 4.9840, 4.9900.

USD/BRL Daily Chart