Brazil Taxing Foreign Debt, Stock Purchases, BZF, EWZ, USD/BRL at Resistance (Charts). Will It Work?

Brazil is trying to slow down hot dollar inflows by imposing a tax on foreign based "real" denominated fixed income and stock investments. Will it work? Brazil is a commodity exporter, and higher commodity prices and Chinese demand have made it a target for hot money, carry trades etc (interest rates are at 8.75%). The iShares MSCI Brazil Index Fund ETF has been on fire and so has the real. The trend is your friend, but watch out for a strong reversal (it closed at 73.20 -4.04% in after hours).

Recent option activity: EWZ saw a November Put spread on 10/16/09. 10,000 November 74 Puts were bought at $3.10 and 10,000 69 Puts were sold at $1.45 according to Andrew Wilkinson of IB. That trade will profit below $72.35. It could make it. Someone also bought 2,000 November 75 calls that day for $3.30.

Brazil Real Cut to ‘Underweight’ at RBC on Tax (Bloomberg)
Brazil’s ‘Desperate’ Tax Won’t Stem Currency’s Rise, Cunha Says (Bloomberg)
Brazil’s ‘Moment’ at Risk as Real Gains, Freitas Says (Bloomberg)
Brazil Exchange-Traded Fund Plunges 3% on Tax on Foreign Inflows (Bloomberg)

US Dollar/Brazil Real (USD/BRL)

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BZF (Brazil Real ETF)


EWZ (Brazil ETF)


Hat tip 0HEDGE for tax news.