FXStreet (Delhi) – Research Team at Deutsche Bank, notes that the November has been a good month for the BRL. Key Quotes “Trading in a very narrow range, the real has been surprisingly resilient to surges in dollar demand and has significantly outperformed its LatAm peers. Meanwhile the barrage of negative news continues, with the combination of fiscal struggles, political gridlocks, high inflation and activity slump increasing the chances of a sovereign downgrade in 2016 and the build in of premium across the complex.” “The uncharacteristic stability of BRL in the aforementioned backdrop led us to recommend low strikes in USD/BRL as a financing source for EUR funded EM (namely MXN, COP and PLN) and while the drop in implied vols has been helping the MTM of the “short”, the possible appointment of former chairman Henrique Meirelles as the next MinFin could cause a temporary run to the BRL that would further increase the wedge between market prices and valuation.” “In a nutshell, we do not believe that a “confidence shock” per se is enough to improve the fundamentals of the battered economy and that the road-blocks for the much needed fiscal reforms will probably remain in the medium term. However, a temporary re-pricing of risk premium could ensue which would obviously be detrimental to long USD/short BRL positions. We stay clear of long USD/BRL outright positions but note that risk-reversals (3M expiries, 25D) are trading at surprisingly low levels (vs CDS), therefore providing a good “hedge” for a blow-up scenario.” For more information, read our latest forex news.