Fall of the Brazilian Real

We often comment that the most profitable foreign currency trading comes from trading the most profitable currency pair. All of the skill in the world at fundamental analysis and skill at trading Forex with Candlesticks is of little use if a currency pair is trading sideways. As the US Federal Reserve considers cutting back on its quantitative easing programs interest rates are going up in the USA and this has had the effect of further accelerating the fall of Brazilian Real. The fall of the Brazilian Real is not just tied, however, to US interest rates. A weakening Chinese economy requires fewer raw materials which has hurt Brazil and the speculation that goes with an overheated economy has also done its part as the South American economy tries to right itself. Currently the Real trades at 2.4 to the US dollar which is as weak as it has been for four and a half years. The central bank of Brazil is attempting to support the Real by injecting over three billion into Forex funds. In the meantime the fall of the Brazilian Real presents a trading opportunity.

What Went Wrong?

Brazil was doing great. People talked about the Latin American super power. The B in BRICS stands for Brazil and many expect or expected to see these nations rise to the economic and political eminence of Western Europe and North America in a generation. Now growth is slow or non-existent in Brazil. Inflation is high. The final nail in the coffin seems to have been the announcement by the US Federal Reserve that it will cut back on its $85 Billion a month bond buying program. This has made interest rates in the USA more attractive and hurt the Real. The fall of the Brazilian Real is not the only story here. India has been hit hard as well and the looming Chinese real estate bubble threatens to damage the Yuan. The bottom line is that these nations were prospering by selling to North America and Europe. When the two largest economies in the world slowed with the worst recession in 75 years growth slowed and even reversed in their suppliers.

Trading the Fall of the Brazilian Real

Brazil has a slowing economy and inflation. These factors serve to drive the Real down. On the other hand the central bank of Brazil has raised interest rates in an attempt to keep capital at home. The bank has purchased its own currency in the Forex markets in an attempt to support its price. It has done this to the tune of $41 Billion in the last three months. Nevertheless the Real has fallen ten percent versus the US dollar during that time. If you want to make money on the fall of the Brazilian Real keep track of events in Brazil and the USA. Then track the price of the Real versus the USD with technical tools. Whereas Latin American economic growth drove the Real and other currencies up an economic slowdown is likely to continue and the fall of Brazilian with it. Experts are predicting 2.45 Reals to the dollar.