Rates are going up everywhere, at least that’s what the financial press would have you believe. On July 26, Federal Reserve Chairman Jerome Powell oversaw a rate hike that placed interest rates at 22 year highs, pegging them at 5.25-5.50%.
The market had largely priced in the rate hike and so the S&P 500 fell just 0.17% on the day. But did you know that another country has adopted a different policy, and might be on the verge of breaking out.
Brazil Goes Full U-Turn
Brazil had adopted one of the most hawkish policies. The interbank rates in Brazil was over twice the level of US rates, reaching 11.53% in July 2023 following a series of hikes.
The Monetary Policy Committee of Brazil’s Central Bank decided to maintain the benchmark SELIC rate at 13.75% in June.And that opened the door to a U-turn in policy. Indeed the headline from Reuters screamed:
Brazil economic team supports interest rate cut of more than 25 basis points
So what does that mean for the Brazilian markets?
Take a look at this remarkable chart. Going all the way back to 2011, the iShares Brazil MSCI ETF, EWZ, has been in a significant downtrend.
But that may be on the verge of changing. The price action of EWZ is now at a crucial level, and notably a level at which it has failed many times over many years in the past. So a break to the upside would be a significant character change, and stupendously bullish. So much so that we would argue steak and lobster would be on the menu if a breakout to the upside occurs.
EWZ should certainly be on your watchlist at this time. Not only from a technical perspective is it right on the verge of a breakout, but also the macroeconomic policy is potentially in direct contrast with much of the world, where rate cuts have the potential to stimulate growth again, and the market is likely to discount that forecast rapidly.
How To Play A Breakout of EWZ
Before the bulls charge for the gates all at once, and cause a melt-up, pay close attention to the $35 threshold level and look to buy on a break above it before others spot the opportunity in earnest.
Will it prove to be a full Rio Carnival of profits, or is this party about to go up in flames as the price hits resistance and continues lower for another year or more?
The answer lies at the $35 level. Only a weekly break above $35 should signal that the trend has indeed reversed and the good times may be about to roll again.