USD/BRL Increased odds of a presidential impeachment pushed USD/BRL below 3.60 for the first time since August.

 A change in administration, however, does not guarantee new policies to address Brazil’s fiscal and economic woes.

Nevertheless, there are tentative signs that the worst may now be behind for the BRL.

The 17% fall in Brazil’s real effective exchange rate from the start of last year and a deep recession have helped restore better external balance.

Brazil’s current account deficit has narrowed from 4.4% of GDP in Q1 2015 to 3.2% in Q4 2015.

Inflation, while still elevated at 10.36%, fell for a second consecutive month in February, easing competiveness pressures.

Added comfort around the exchange rate led the Brazilian central bank to ease intervention.

Still, the fragile state of Brazil’s political economy leaves us sceptical that recent moves lower in USD/BRL can be sustained in the near term.

BRL against USD hits at 3.4850 to flash a fresh 8 months highs. Contemplating technical indications, we could foresee more dips in the days to come, the best way to tackle this trend is to remain short in mid-month futures at every rallies for targets upto 3.1980 levels.

Hence, one can short in near month futures for hedging downside risks as the dips are expected to drag further but not a drastic slumps, or go long in USD/BRL 1Y ATM vs sell 18M 25D strangle, 1:2 vega.