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USD/BRL nears 200-day moving average as election risks weigh on BRL
Societe Generale downgraded Brazil to neutral, citing underpriced election and fiscal risks that could weaken the Real even with carry still supportive.
Societe Generale strategists said USD/BRL has formed a higher low around 5.04 and is testing its 200-day moving average near 5.22, after breaking above a descending trend line drawn since December 2024.
The firm projected upside for USD/BRL toward 5.34 to 5.38 if it clears resistance near the June peak at 5.22, with the next targets extending higher. It also pointed to 5.08 as the first support level after the pair’s earlier weekly low.
Despite the carry backdrop, Societe Generale downgraded Brazil to neutral, warning that election and fiscal risks appear underpriced and could pressure the Brazilian Real.
The bank cited economist Dev Ashish’s election outlook, which assumes a 65% probability of President Lula winning alongside a divided Congress, adding that in that scenario the BRL could weaken toward 5.25 to 5.35 and require Brazil’s central bank to ease cautiously, with the Selic rate potentially falling to 11.5% by end-2027.