Sacha Tihanyi, Senior EM Strategist at TDS, explains that they are hesitant to take long position at current level and would prefer to sell it on a medium to longer term basis above 3.80. Key Quotes: “We expect Brazilian assets to remain supported on a proimpeachment vote, and while there remains upside potential for BRL, bonds, and lower sovereign risk premiums, valuations are increasingly pricing-in too great a certainty of a very optimal outcome.” “The Bovespa looks particularly ‘hot’ given that it has rallied back more than 7% further than its June through January selloff. BRL, government bond yields, and sovereign risk (CDS) have rallied and retraced substantially (CDS the least), but these three assets still look less exposed than equities. Nevertheless, there remains scope for further optimism to be priced-in relative to the current rally if one decides to trade tactically the headlines and probability of impeachment given evident pro-impeachment momentum.” “We are well through our end of year target for USDBRL at 3.70, which leaves us very hesitant to take strategic long positions until we get a sufficient pullback, and would prefer to sell USDBRL on a medium to longer term basis above 3.80, barring any complications to our base case of impeachment. The increased aggressiveness of the central bank in the reverse FX swaps market has shown that policy makers are not overly comfortable with USDBRL trading below the 3.60 level.” “We do note that our current end of year forecast will be nullified and changed much more BRL-bearish if we see Rousseff avoid actual impeachment, or assign a high probability that a substantial fiscal will be thwarted.” For more information, read our latest forex news.