Fundamental Analysis: USDILS Drops after a Dovish Fed

The Israeli shekel has continued to make gains against the dollar in today’s session so far. While the Fed’s dovishness gave some fuel to the move, the main catalyst was better data from Israel. On the other hand, the shekel has declined somewhat against the pound today.

USDILS reached week lows this morning around ₪3.578. For GBPILS, it was the opposite direction, moving up to a week high of ₪4.557.

Major events for paired currencies this week

Some of the biggest recent news for pairs with the shekel has come from the USA and the UK. The Fed’s relative dovishness last night as the Federal Open Market Committee opened the door to rate cuts was a very strong negative for the dollar in most of its pairs, including USDILS. Conversely, yesterday’s data from the UK was unusually positive on the whole, especially annual CPI holding at 2%.

The traditional consideration of the shekel as a ‘conflict currency’ has helped ILS to make fairly big gains overall during the past few months. Relative calm in Israel and the Palestinian territories combined with a decrease in political risk has meant that focus has turned more to paired currencies and Israeli data.

Recent data from Israel has generally been strong. Last Friday’s inflation release especially gave a boost to the shekel. 1.5% annual inflation beat expectations slightly, but more importantly printed the highest figure since December 2013. This could suggest that inflation is actually rising more than the Bank of Israel expects. The BoI’s monetary policy committee noted last month that it expected subdued inflation due to the shekel’s recent strength.

BoE meets today, then Philly manufacturing

The two most important releases for pairs with the shekel today are from the UK and USA:

• 11.00 GMT: Bank of England’s rate decision and press conference
• 12.30 GMT: Philadelphia Fed manufacturing index (June); consensus 10.6, previous 16.6

These events could cause significant volatility for USDILS and GBPILS. Particular focus will probably be on pound-shekel around Mark Carney’s comments, specifically on Brexit and growth in the UK.

Apart from these, Israel releases data on annual change in money supply tomorrow at 09.30 GMT. However, the figure is unlikely to affect the shekel significantly.

Mixed directions for ILS

The shekel’s fundamentals recently have been quite strong, so more gains against the dollar seem to be possible. At the same time, traders should monitor technical indicators on USDILS, particularly for oversold conditions. Against the pound, the nature of the BoE’s comments later is likely to determine direction.

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