Forex Investment and Currency Trading

1 – 3 Month Outlook: Global storm roils BRL
The financial crisis has deepened and the bearish forecast for emerging markets, including Brazil, has materialized, although it occurred faster than expected. Over the coming months,  it’s expected that the current environment of high volatility and elevated risk aversion to persist, driving aggressive sell-offs followed by occasional large rallies. The moves in USD/BRL over the coming 1-3 months will be driven not by fundamentals but by commodity price adjustments, global risk aversion swings and
broad USD trends. Forecast for USD/BRL for end 08Q4 is now 2.00.
BRL 6 - 12 Month Outlook
An expected continuation in global de-leveraging and risk [...]

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The monetary policy committee (COPOM) hiked the overnight Selic target rate by 250bps since first lifting rates in this cycle on April 16. In the last meeting, the decision was split (5-3) with dissenters arguing for a lower 50bp hike than the 75bp move that was actually made.
Recent Copom minutes are in line with expectations that signs of inflation are beginning to ease and provide the BCB with some comfort. Fewer inflation strains are evident from recent price movements as well as the potential for falling commodity prices reduce pressures going forward. Copom clearly remained concerned at the meeting regarding [...]

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Following years of appreciation, the trend recently appeared to have been broken. The Real appreciated to below 1.57/USD in early August before losing 16% on the back of renewed global turmoil. The BRL has suffered from a 34% fall on the Bovespa, driven by sharply weaker commodity prices. The sell-off has been too sharp and not justified by fundamentals. The COPOM remains in tightening mode and can be expected to raise rates at least twice more, firmly establishing the BRL as the second highest-yielding major EM currency.
The BCB is unlikely to support the Real just yet, but fundamentally the currency [...]

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