In conjunction with structural constraints and commodity-led BRL depreciation, the BCB's easing bias over the past decade has been a key factor behind higher trend inflation.

While we expect inflation to continue to moderate this year on a base effect, the 2017 inflation trajectory is considerably more uncertain.

Cyclical factors like growth and labour market weakness are expected to contribute to inflation moderating, but the uncertain fiscal trajectory could continue to pressure domestic savings and investor sentiment, with negative implications for the BRL and inflation expectations.

Moreover, given the outcome of low interest rates in 2012-13, we would be surprised if the BCB decides to ease too soon or substantially without being certain about fiscal prospects and the inflation trajectory. Expected Fed tightening this year could also militate against the possibility of substantial BCB easing. 

USDBRL forms shooting star with RSI downward convergence above overbought territory, as a result 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 1Y3M strangle, 1:2 vega.