Guilherme Marone, Strategist at Deutsche Bank, suggests that the likelihood of a presidential impeachment increased considerably in Brazil after the political developments of last week.
“And even if polls suggest the majority of the population support the impeachment process, a considerable amount of uncertainty remains regarding the resolution of the process. Timing therefore remains a major issue - even if the hard evidence (and the shift in the balance of powers) progressively supports the pro-impeachment case, we sense that markets (especially FX and equities) might be underestimating the complexity associated with the resolution of the process.
While reduced, the government firepower is still significant and an increase in political gridlock could still result in short-term disappointment. Altogether we feel like the BRL (and equities) will face some bumps on the road before it consolidates (even if temporarily) at stronger levels.”
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