Options traders are dropping their bearish bets against the Brazilian real at the fastest pace since April as Goldman Sachs Group Inc. says the currency's biggest slump in 15 months is over because growth is picking up.

The currency will rally as much as 6 percent against the dollar by March 31, recovering most of its January tumble, the median estimate in a Bloomberg survey of 19 analysts shows.
Goldman Sachs, which called the real the world's most "overvalued" currency as recently as December as it completed a 33 percent annual gain, and Bank of America Corp. said yesterday it's time to start purchasing again.

"A little bit of a sell-off here makes it a more attractive buy," said Collin Crownover, the head of currency management in London at State Street Global Advisors Inc., the world's second-largest money manager for institutions overseeing $1.74 trillion. Crownover said he plans to add to bets that the real will rise against its Latin American peers.

The real's 7.9 percent drop against the dollar in January, the most among major currencies, left it 7 percent weaker than the median estimate in Bloomberg's survey. That's the widest gap since March, when the currency began a four-month advance. The premium on put options that grant the right to sell the real in a month over calls to buy it fell to 2.9 percentage points yesterday, the lowest level since April, from 6.7 percentage points on Nov 3.

Eoin Treacy's view The Brazilian authorities have been more aggressive than other countries in resisting the advance of their currency. They succeeded in stalling the Real's advance from October and the US Dollar broke upwards against it in the middle of January. Yesterday's downward dynamic checked the Dollar's advance for at least the short-term and it now needs to sustain a move above BRL1.9 to question scope for a further test of underlying trading.

The Real's strength contributed to yesterday's upside key day reversal on the Latin American Dollar Index. The fact that this occurred from the region of the ascending 200-day moving average further emphasizes the importance of the rally from this level. While the Index still needs to sustain a move above 110 for the signal to be more convincing, potential for further higher to lateral ranging can probably be given the benefit of the doubt in the absence of a decline below yesterday's low near 106.

The fact that risk assets and their respective currencies have firmed, many from technically significant levels supports the contention that current market activity is indicative of a medium-term correction rather than an outright reversal.