Bias: The EUR/BRL is currently bearish-to-range-bound, positioned below the 90-day average and in the lower half of the 3-month range.
Key drivers:
• Rate gap: The European Central Bank is maintaining a neutral stance, while Brazil's central bank is grappling with persistent inflation, keeping the Selic rate high at 15%.
• Risk/commodities: Oil prices are trading above their 3-month average, suggesting support for Brazil's economy due to oil exports, which could provide the BRL some strength.
• One macro factor: Brazil's introduction of stimulus measures raises concerns about inflation, complicating the effectiveness of monetary policy.
Range: The EUR/BRL is likely to drift within its recent range as both currencies experience pressures that keep them in a stable but uncertain position.
What could change it:
• Upside risk: A resolution in trade relations could boost the BRL, improving economic outlook.
• Downside risk: Further weakening of Eurozone economic data could heighten bearish pressure on the EUR.
