Brazilian Real Should Consolidate Before Declining Again

T. Pizzuti & K. Hulse

Following our article about Brazilian stocks posted a few days ago, we wanted to show a chart for the Brazilian currency – the Real.

As with the equity ETF, the Real is at an area where it could put in a bounce before resuming the next leg of a decline.

Unlike Brazilian stocks, we think the currency will probably make a new low sometime during the next two years.

The strong decline into 2015 had the characteristics of a third wave, and the action since the 2015 low looks corrective. Now we are viewing the current decline as part of the corresponding fifth wave although there can be different interpretations about which stage the current decline is in. Depending on where wave [iv] ended, the recent decline could be sub-wave (i) of [v] or alternately sub-wave (iii) of [v].

On the weekly chart shown above, the main count is shown with black labels and the alternate count with blue labels. A bounce from the recently tested support area might find resistance at one of the Fibonacci retracements shown at 0.2664, 0.2759, and 0.2913. That bounce might be considered either sub-wave (ii) or sub-wave (iv), although the approach to trading it might not differ by much.

A correction from here could last several months, and it might veer upward or merely stay in a sideways range. Traders with a bearish view should allow for price to test at least the 0.2759 level and perhaps higher. Traders seeking to take advantage of an upward move should keep in mind that the move could be choppy and would be counter to the downward trend.

The supports shown on the chart are Gann levels. The Real has already tested 0.2537 as support, and it could possibly test the next nearby support at 0.2443 before the bounce really kicks in.

This chart merits watching during the next few months for a good entry point.

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The authors may have a position in the mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.