The Brazilian central bank has 400B in USD reserves and it affects ADRs.

Discussion in 'Stocks' started by OTCkrak, Jun 20, 2013.

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    Bovespa respected a technical support level and could bounce from here.

    Bovespa painted a beautiful candle when it closed up after an 8% range day. It was a major global sell but brazilian stocks were already in oversold territory. Combined with the BRL depreciating about 10% in a month, the volatility was incredible.

    Brazil capital markets didnt need the protests to made headlines around the world and it wasnt welcomed by investores who surely kicked up the politcal and country risk the past few days. In my opinion the reaction over the past week was overdone and todays move in Bovespa combined with a potential floor for the Real.

    The protests in Brazil a form of "Occupy Wall St" _ BR version. yes there are looters, and great photo ops. But don't think this will end up in a revolution or civil war. There are no militarized rebels, or the type of warfare seen in Libya/ Turkey/ Egypt/ Syria. The protest are mostly peaceful and accomodated by police and local governments. Admittedly, there are some idiots burning tires, vandalism but it is mostly a peaceful demonstration and the culmination of the twitter age and V for Vendetta fan boys.

    Look at any Brazilian ADR that fell less than 3% today and consider it actually an UP day. With the Real falling hard, these stocks held up. SID for example had a huge volume up day before the protests made headlines.. despite strong pressure in both BRL / commodities/ peer group.. the stock held up.

    EWZ closed down but compensated for the BRL depreciation. I believe the central bank will draw a line on the sand in the next week. BRL is an "exotic" currency with a small relative international float thats why you probably cant trade it on a retail fx account.. but there are futures on CME. The central bank has a dollar reserve of 400B and effectively controls the float. If it wants to set it a a BRL/USD 2.00 or 2.20. A strong a expressive response to the deteriorating conditions can hold the currency higher which force a short covering in BRL and push stocks higher.