Brazil…after the upgrade.

Brazil was upgraded last week to investment grade status by S&P. This upgrade lifted Brazil’s sovereign credit rating one notch to BBB-. They cited a maturing of institutions and improved growth prospects.

This initially caused the currency to strengthen considerable from 1.7000 to 1.6600 on the day, and then continuing the march down to 1.6425 on the following day. But since then it has been a different story. The currency is currently trading at 1.6630. A key level for me is 1.6640. A close above here signals a move to 1.7120-30 area. I also think that the differential between Brazil and U.S. rates will widen out. After the excitement of the upgrade we have been seeing a steady selling of fixed income. I think this is due to the Central Bank’s current rate tightening stance. Near term rates are going higher. Pair this up with U.S. rates coming lower and the differential needs to widen.

All of the Latin American currencies are under pressure today. It looks to me as some risk is being taken off the table.

Good Luck and Good Forex Trading.