Key Moments
- USD/BRL has established a higher low near 5.04 and is testing its 200-day moving average around 5.22, with upside levels projected toward 5.34-5.38 and 5.46.
- Societe Generale has shifted its Brazil view from bullish to neutral, citing underpriced election and fiscal risks despite a still-supportive carry backdrop.
- Societe Generale’s economist assigns a 65% probability to a Lula victory with a divided Congress, a scenario in which BRL could weaken toward 5.25-5.35 and the Selic rate could fall to 11.50% by end-2027.
Technical Setup: USD/BRL Challenges Key Resistance
Societe Generale strategists report that USD/BRL has carved out a higher low close to 5.04 and has moved above a declining trend line that had been in place since December 2024. The currency pair is now confronting its 200-day moving average.
They highlight the June high at 5.22 as an initial resistance level that the market is currently testing. A successful break above that point could open the door to a more extended move higher in USD/BRL.
According to their analysis, subsequent upside targets are situated at 5.34-5.38 and then 5.46. On the downside, they note that the low seen earlier this week at 5.08 is the first notable support area.
| Level | Type | Comment |
|---|---|---|
| 5.04 | Higher low | Recent higher low in USD/BRL |
| 5.08 | Support | Low recorded earlier this week, cited as first support |
| 5.205-5.22 | 200-DMA / Resistance | Zone around the 200-day moving average and June peak |
| 5.34-5.38 | Upside projection | Next technical objective if resistance breaks |
| 5.46 | Upside projection | Further potential target |
| 5.25-5.35 | Scenario range | BRL range in SocGen’s election scenario analysis |
LatAm FX: BRL Underperforms as Politics Intensify
Within the broader Latin American foreign exchange space, Societe Generale notes that the Brazilian Real has been softening toward its 200-day moving average, indicated at roughly 5.205. This weakening trend is drawing attention in the region.
They acknowledge that limited liquidity is part of the backdrop, but emphasize that political uncertainty ahead of the election is becoming more pronounced. These mounting tensions are contributing to underperformance in BRL and may be prompting investors to rotate toward MXN as a relatively more attractive alternative.
Rates and Equities Reflect Growing Caution
Societe Generale points out that domestic interest rate markets are also signaling unease. “DI rates are grinding upwards across the curve and the Bovespa plumbed 7-month low of 168k yesterday. Our strategy team downgraded Brazil to neutral from bullish several weeks ago, arguing that election and fiscal risks are underpriced notwithstanding the favourable carry backdrop.”
This shift to a neutral stance indicates that, in their view, the supportive carry provided by Brazilian assets is no longer sufficient to offset the political and fiscal uncertainties looming over the market.
Election Scenario: Implications for BRL and Selic Path
Societe Generale’s economist Dev Ashish provides a specific election scenario and its potential market consequences. “Our economist Dev Ashish argues in his election outlook that victory for President Lula is the case and carries a 65% probability, alongside a divided Congress. In this scenario, the BRL could weaken towards 5.25-5.35, forcing the BCB to proceed cautiously with easing. The Selic rate would then drop to 11.50% by end-2027.”
Against this backdrop, the bank concludes that while carry remains a supportive factor for the Brazilian Real, the combination of election dynamics and fiscal concerns poses meaningful downside risks that could limit the currency’s appeal relative to other regional alternatives.
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