EUR/BRL Price Forecast Q4 2020: The Surge has Stalled, for Now
Skerdian Meta • 4 min read
While Brazil is a developing economy, which means that the foreign investments in the country keep increasing, the Brazilian Real, BRL, hasn’t benefited from it. The USD/BRL has been surging higher, as the analysis in that forecast shows, while the USD has been declining against all forex majors, which shows that the BRL has been extremely weak. The demand for the Euro on the other hand has been surprisingly strong, despite the Eurozone economy being among the weakest of developed economies of the world during 2020.
This has led to the EUR/BRL being extremely bullish during 2020. The trend was already pretty bullish, with moving averages pushing the price higher on the monthly chart, as shown above, but in 2020 this forex pair has surged from around 4.50 to 6.80. We are seeing a slight pullback in November, but the bullish trend is likely to resume again soon.
Current EUR/BRL Price: $
Recent Changes in the EUR/BRL Price
|Period||Change ($)||Change %|
Factors Impacting EUR/BRL
The Euro is more stable than the BRL, although the monetary policy from the European Central Bank (ECB) and the fiscal measures from the EU have helped it during the economic troubles of 2020. Brexit is not causing too much of a hassle for the Euro, but we will see where it ends up at the end of 2020. The BRL, on the other hand, is heavily influenced by the risk sentiment in financial markets, falling when the risk sentiment is negative, hence the big decline in 2020, as the global recession turned the sentiment extremely negative. The decline in commodity prices has had its impact on the BRL as well, while the central bank of Brazil has cut rates to record lows, so the situation doesn’t look good for the Brazilian Real, although it is positive for the EUR/BRL.
|EUR/BRL Forecast: Q4 2020||EUR/BRL Forecast: 1 Year||EUR/BRL Forecast: 3 Years|
|Price: $ 6.00 – $ 6.10|
Price drivers: Covid-19, Eurozone Economy, Risk sentiment
|Price: $ 6.50 – $ 6.70 |
Price drivers: CBC, ECB, Eurozone and Brazil GDP, Commodity prices
|Price: $ 8.00 – $ 8.50|
Price drivers: Inflation in Brazil, Economic recovery, Developing markets, Global politics
EUR/BRL Price Prediction for the Next 5 Years
Fundamentals for the Euro
The European economy was already quite weak in 2019, before the coronavirus hit the continent. Then the measures and lock-downs sent it diving into recession, as did most major economies. But, the Euro stood its ground quite well, especially after the first coronavirus fund back in June, which boosted the economy. However, despite the fund, the economy started softening again in summer, and in September, services fell into recession again.
Now, with the new measures and partial lock-downs across the continent, the entire economy is headed into recession once again. Yet, the Euro is holding well, despite all of this, including Brexit, which is nearing the end of the transition period, still without any deal being reached. The EU is trying to pass another coronavirus fund to support the economy during the second wave of restrictions, which will weigh on businesses, particularly on services, but Poland and Hungary refused to approve the proposed budget in the middle of November.
Fundamentals for the BRL
As mentioned above, Brazil’s status as a developing nation hasn’t helped the Brazilian Real. The BRL has been on a long-term bearish trend, as the technical analysis below shows, and fundamentals haven’t helped much recently. The global economy came back from a recession in summer, and it seems as though certain economies, like the Eurozone and the UK, are heading in that direction again. This hurts the sentiment for risk currencies, such as the BRICK ones. Besides that, the global recession has also pulled the capital out of developing nations, exchanging these currencies for foreign currency.
With the second downturn in the global economy this winter, the situation for the currencies of developing nations will only get worse, and the uptrend in the EUR/BRL is likely to resume again soon. Another reason for the bearishness of the BRL is the fact that the Brazilian Central Bank (CBC) has cut interest rates to 2.00%, which is the lowest on record, and they have said that they can’t go lower due to inflation, even if the economy weakens further. This is a toxic scenario, which points to further weakness in the BRL.
Technical Analysis – Moving Averages Keep Pushing the EUR/BRL Up
MAs couldn’t even catch up with the price in 2020
The charts below show the long-term bullish trend in the EUR/BRL. This currency pair started at 1.80 in 200 when the Euro was introduced, and moved to 4.00 by the end of 2002. From then until 2010, the trend was bearish, and the price fell to 2.20, but the 200 SMA (purple) held the decline and provided support for the next two years, before the bullish trend resumed again. The 100 SMA (green) provided resistance for a while, but it couldn’t resist the pressure and gave way. Eventually the 20 SMA (gray) and the 50 SMA (yellow) turned into support for this pair, pushing it higher.
The 50 SMA is catching up on the weekly chart
On the weekly chart, we see that, most of the time, the moving averages have done a great job in providing support as well. The bigger period moving averages have done so when the trend hasn’t been too strong, while the smaller ones, such as the 20 SMA have taken their turn when the trend has picked up pace. Since the beginning of this year the buying pressure has been quite strong, and the 20 SMA has been providing solid support. Last week, the price bounced off this moving average, but it is turning back down this week. This might be a good chance to buy EUR/BRL if the 20 SMA holds on the weekly chart.