Key Moments
- Societe Generale highlights a higher low in USD/BRL at 4.94 and a short-term rebound toward the 200-day moving average near 5.14.
- A decisive move above 5.14 is seen as potentially opening further gains toward the September highs around 5.20/5.24, with 4.99 viewed as near-term support.
- Political and macro developments in Brazil, including polling dynamics, Senate legislation, and recent retail sales data, are influencing BRL performance ahead of the presidential runoff.
Technical Setup: Higher Low and 200-Day Moving Average Test
Societe Generale strategist Kenneth Broux observes that the USD/BRL pair has recently formed a higher low and is in the midst of a short-term upward move targeting its 200-day moving average, located close to 5.14. According to the bank, this level is emerging as an important technical area that could shape the next directional move in the currency pair.
The bank points out that the recent low around 4.99 is being monitored as a short-term support zone, while the price action is gravitating toward the 200-day moving average, which may serve as a resistance level in the near term.
Key Levels in Focus
The analysis emphasizes that a sustained break above the 5.14 region would be significant from a technical perspective. A confirmed move beyond this threshold is viewed as potentially opening the door for a broader advance toward the September peak in the 5.20/5.24 area, suggesting growing downside risk for the Brazilian Real if that scenario unfolds.
| Level | Significance |
|---|---|
| 4.88 | Low recorded in May |
| 4.94 | Recent higher low in USD/BRL |
| 4.99 | Low earlier this week, cited as short-term support |
| 5.14 | Approximate 200-day moving average and key resistance |
| 5.20/5.24 | September high zone that may be targeted if 5.14 is cleared |
Societe Generale Commentary on Price Action
“USD/BRL carved out a higher low at 4.94, compared with the 4.88 low recorded in May. A short-term bounce has materialized following this test. The pair is now approaching the 200-DMA near 5.14, which could act as an interim hurdle.”
“If USD/BRL establishes itself above 5.14, a larger up move cannot be ruled out towards September high of 5.20/5.24. The low registered earlier this week at 4.99 may serve as a short-term support.”
Political Landscape and BRL Performance
Societe Generale also highlights the role of Brazil’s political backdrop in driving currency dynamics. The bank notes recent polling trends and how these are shaping expectations for fiscal policy and risk sentiment, with implications for capital flows and the Real.
“Market friendly candidate Flavio Bolsonaro has led Lula in every major runoff poll released over the past week by 2-6pp, raising expectations of a more fiscally conservative policy mix that could compress risk premia, attract bond inflows and further support BRL.”
“BRL rally loses steam ahead of presidential runoff. The BRL is up 2.1% MTD on a total return basis, while MXN has been the main LatAm laggard (-1.6%), as investors increasingly favour markets where politics and carry are moving in the same direction.”
Legislative Developments and Macro Data
Recent legislative action and domestic economic indicators are also cited as important elements in the current market narrative around the Brazilian Real.
“The BRL rally was cut short yesterday as the Senate approved legislation to shorten the workweek without reducing pay, which may benefit Lula in the 25th October runoff vote. The macro data have also tilted in Brazil’s favour, with retail sales rebounding 0.8% m/m in August after a 0.8% decline in July.”
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