Cristian Maggio, Head of Emerging Markets Research at TD Securities, notes that trading Brazilian assets and the real (BRL) is becoming too complicated, all about political and judicial twist. Key Quotes: “So what’s going on in Brazil exactly? It’s all about politics. We mentioned this last week, when former President Lula got more deeply involved in the Lava Jato scandal. Rumours that he may be arrested soon have fed speculation that Dilma’s days are also counted. And the chain of events that would follow has wickedly pushed the BRL stronger than we had initially anticipated.” “Most importantly, nothing is certain or well timed. The BRL performance and that of local equities (Ibovespa up 32% trough-to-peak this year) are all about political and judicial twists, which remain intrinsically unpredictable.” “So, for example, a Lula arrest could move the odds of a Dilma impeachment higher to 70-80%, which would benefit BRL more. But if Lula escapes all this, or he receives Congress immunity from prosecution and arrest, we could see BRL strength unwinding all of a sudden.” “Trading Brazilian assets is becoming all too complicated, and we are now under the impression that being long BRL is becoming increasingly risky without more concrete facts.” “USDBRL is currently far lower than our 4.20 forecast for Q1 and 4.35 for Q2, but could easily correct closer to 4.0 if the Dilma case for impeachment suffers any setback.” For more information, read our latest forex news.