The Brazilian Real has lost more than 60% of its value against the US Dollar since peaking in July of 2011. A combination of a weak Real and very strong Dollar has pummeled Brazil’s currency. Unfortunately for those who continue to hold the currency, it looks as if the pain may not be over. And maybe, by a long shot.
Looking at the ratio of the Dollar to the Real in the chart below, you can see it sits at an important level that has provided resistance many times in the past. Each and every attempt to move higher has been rejected. Those pattern geeks will appreciate the smaller (blue) cup and handle pattern is the handle of the much, much bigger red, cup and handle. A pattern within a pattern. Something that occurs quite often and provides a higher probability outcome.
If the dollar continues to rise, like I believe it will, and eventually breaks above the important horizontal resistance, the Real is in real trouble. The first target would be another 13% decline, the second target would be double that and the third? Let’s not go there because I don’t want to talk about low probability events especially considering the potential disastrous affects it could trigger. The bottom line is those that anyone in the US holding Brazilian Real should expect a loss in their purchasing power. Those in Brazil, should expect to see the cost of imported items (particularly those denominated in US dollars) rise dramatically. Those that are looking to travel to Brazil from the US should find some huge bargains ahead.