EUR/BRL Outlook:
The EUR/BRL is currently bearish as it remains significantly below its 90-day average and near recent lows. This reflects ongoing pressures on the Brazilian Real and lack of momentum in the euro's favor.
Key drivers:
- Rate gap: The European Central Bank has kept interest rates steady while the Brazilian Central Bank maintains a higher Selic rate, impacting demand for the BRL.
- Risk/commodities: Oil prices are high, which negatively affects Brazil's trade balance, worsening conditions for the BRL as it relies on commodity exports.
- One macro factor: Recent cuts to the Bolsa Família program could reduce consumer spending in Brazil, further dampening economic prospects and the BRL's strength.
Range:
Expect the EUR/BRL to drift within its recent range, fluctuating between significant lows and highs without any strong directional bias.
What could change it:
- Upside risk: A surprising rise in eurozone economic indicators could strengthen the euro unexpectedly.
- Downside risk: Continued strength in the U.S. dollar could pressure the BRL further, pushing the EUR/BRL lower.
