BRL: Outlook is positive - SocGen

Analysts at Societe Generale explain that as the political noise surrounding the corruption allegations against Temer started to increase in mid-June, they turned increasingly bearish on the BRL, which proved incorrect.

Key Quotes

“Markets have decidedly shrugged off the news, and with a favourable backdrop for EM reasserting itself, the outlook for BRL is now more positive. For USD-BRL to break through the February lows (3.05), it will take a larger risk-on move in EM than we currently expect. With price action appearing a bit stretched, we do not see value in chasing the cross lower. With that said, unless there is significant deterioration in EM sentiment that is accompanied by political disruptions, there may be limits to BRL depreciation. The biggest risk is that the market underestimates the probability of stalled pension reform, and that this acts as the catalyst for investors to re-evaluate their bullish positioning.”