We see the recent relief rally in EM as an opportunity to re-engage long USDBRL. We continue to see increasing risk premia in Brazilian assets as structural problems are far from being solved. Next week votes on 2015 and 2016 budgets should reflect the lack of political cohesion that Brazil is facing. While the economic activity collapses and unemployment rises, fiscal consolidation looks implausible, calling for a weaker BRL as inflation continues to drift higher along with inflation expectations. 3.70 should serve as a support in the weeks to come (Fibonacci retracement from March 2013 to September 2015) while we see some scope for USDBRL to move towards highs reached late September.
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