The Brazilian Real: From Bad To Ugly

Lior Alkalay - Contributor - Forex

Over the past two years, it seems, Brazil has remained in the headlines for the very worst of reasons – corruption. In fact, the very latest scandal at Petrobras, the state owned petroleum giant, reached all the way to its upper echelon. Long gone are the days when the Brazilian government was praised for its fiscal discipline; the situation there has become so notorious that the name Brazil, it seems, has become synonymous with corruption. And as if this were not bad enough the country's main exports, which range from iron ore to agricultural goods, have tumbled in crisis. Yet, as investors, we always seem to intuitively look at the bright side of even the worst situation; in this case, we have thoughts of buying because when the situation is as bad as it is, we think, from here on out, that the situation can only get better. The Brazilian economy is basically at a standstill with a weak government at the helm, and there is one corruption scandal seemingly after another, and given the softness in commodities' prices the question that investors want an answer to is this: is the collapse in the Brazilian Real over?

A Broken Banking System

While many see corruption as the core problem in Brazil, this writer thinks the true core and the basis of the problem is, in fact, rooted in the country's banking system and at its heart, with Brazil's central bank, the Banco Central do Brasil. While reforms in the country are key for future growth it is the credibility of its central bank that is key for the Real, and as the chart below reveals, credibility is sorely lacking.

Chart courtesy of

The central bank has marked the 4.5% as the desired target for inflation. Yet the Brazilian central bank, generally amid political pressure to spur growth, has always eased policy prematurely and too aggressively. However, when it comes to tightening, the fact is the central bank doesn't apply those same standards. When in 2009 inflation peaked, rates were cut quickly, to as low as 8.75%, and left unchanged for several months. Soon after, though, inflation spiraled out of control once again, above 7%. And yet again, the Brazilian central bank was behind the curve, tightening too slowly and allowing inflation to move outside its targeted range. Once inflation slowed to 4.91% the central bank once again cut rates, this time even more aggressively than before, and the results were not pretty. As seen in the chart, inflation was soon out of control, to the extent that the latest reading on inflation hit 8.13%, once again spurred on by a central bank that hands out rate cuts much too easily. Continue reading "The Brazilian Real: From Bad To Ugly"

Three Currencies To Watch Versus The U.S. Dollar

By: Cory Mitchell, CMT

In forex trading, trade with the trend. Trends last a long time and tend to go further than people expect. Those who bought the EURUSD above 1.39 less than a year ago can attest to that, with the pair having traded as low as 1.0462 in March.

The U.S. Dollar (USD) isn't just strong against the Euro; it's strong against nearly all currencies, major and minor. For trades lasing longer than a few weeks, trading on USD strength--in alignment with the trend--is still the main play.

The USDCAD, NZDUSD and USDCHF are in a slightly different position though. Trading in the direction of USD strength is still a possibility, yet it's wise to have a few pairs to trade if the USD reverses. If the USD reverses, or even sees a deeper pullback, it is likely to be showcased in these pairs first. In fact, it has already begun.


The USDCAD hasn't given up much ground this year (relative to many other pairs), as it channeled between resistance just below 1.2840 and support just above 1.2350. Continue reading "Three Currencies To Watch Versus The U.S. Dollar"

Is The Ruble Meltdown Over?

Lior Alkalay - Contributor - Forex

The 16th of December will be remembered by investors across the globe, and Russia specifically, as “Black Tuesday;” a day when investors got a quick and unwelcome reminder of the 1998 crisis during which Russia was bankrupted. On Black Tuesday, the Ruble tumbled by 21.1% in less than a day and hit 78.51; Credit Default Swaps (CDS) for 5 years have priced in a 8.8% chance for a Russian bankruptcy. Black Tuesday was, simply put, an utter meltdown; investors were in a panic, Russians were running to the banks and the risk of a total collapse of the Russian economy hung in the air. Yet two weeks later, as some of the chaos from that Black Tuesday began to dissipate, some stability has emerged and with it the Ruble has regained some lost ground. The two questions which beg to be asked and answered; Is it the calm before the storm or perhaps a step toward stability? As we attempt to answer these questions we will also, hopefully, shed some light on the Ruble’s possible trajectory as a consequence.

What Ignited the Chaos?

Although it is still debatable as to what exactly was the last straw, there are clearly two very big contenders. The first was Rosneft, the Russian oil giant, was effectively bailed out by the Russian State through the tapping of the country’s emergency reserves. Continue reading "Is The Ruble Meltdown Over?"

Are You Bullish or Bearish the EURO vs the U.S. Dollar. Your input is needed

What do you think is going to happen to the EURO vs the U.S. Dollar in the next month? Today on our 1 pm update we will be looking into the trend of the EURO and point out some very interesting traits about the Forex markets.

Please feel free to vote and add your comments.

Every Success,

The MarketClub Team



Adam's 5 Big Market Predictions for 2011

It's that time of year again when everyone who is considered an "expert" comes out of their ivory towers and makes their annual market predictions for the New Year.

It's time to kiss those predictions goodbye.

I can honestly say that I wish I had a crystal ball like these other forecasters, but that's not quite how the markets work. You see, markets don't give a "Rats A**" about what forecasters say or what predictions economists make. The market is the only true voice out there.

Think about that for a moment. How many predictions do you remember that were even close to being spot on a year in advance? I remember several forecasts for 2010 and most of them were far from accurate.

Does it make any sense to trade on a year-end forecast, not knowing what can happen in this crazy world we live in? It doesn't make any sense to me or to other professional traders who never trade based on year-end predictions.

So let's get back to reality and take a look back on 2010 to see what the big trends are showing for 2011.

Continue reading "Adam's 5 Big Market Predictions for 2011"