The 3 Shekels Level Could Become the Market Equilibrium Point in the Near Term According to 3 Factors

SadaNews - The dollar sharply rose against the shekel this morning, Tuesday, nearing the 3 Shekels level, which it last reached on April 21.

The "Globes" newspaper, in a report translated by Sada's Economy, quoted "Ronen Menahem", the chief economist, saying: "The dollar recorded a recovery of 1.5% against the euro and 1.4% against the British pound last week, while it saw a larger increase of 2.7% against the shekel. Hence, the situation is contradictory." He added: "The shekel is now declining against both the dollar and euro due to a cautious interpretation of the implications of the agreements between the United States and Iran on Israel, in addition to the decline in US stock markets (the Nasdaq index lost 2.1% last week and 1.3% yesterday), as the shekel tends to retreat against the dollar during such periods."

"Menahem" expects that the Bank of Israel will intervene again in the foreign exchange market, after purchasing dollars worth approximately 800 million dollars in May," according to the translation of Sada's Economy, and writes: "This is a continuation of a shift in direction following the Governor's statement at an economic conference and the Bank of Israel announcing immediate purchases of foreign currencies during May, and it is not unlikely that a similar step will be taken this month as well."

Other factors influencing the dollar's strength include expectations that the US central bank is about to raise interest rates in a series, and "Menahem" points out that "the dollar is witnessing a global rise amid increasing estimates that interest rates in the United States will rise by between 0.25% and 0.75% by the end of the year."

What Next?

"Menahem" writes: "It should be noted that after the shekel touched 2.8 against the dollar, its current weakness stems from a relatively strong starting point, and its proximity to the 3 shekels level may prompt traders to reconsider their next move, potentially leading the market into a period of anticipation. Both factors - the geopolitical context and the actions of the Bank of Israel - may continue to impact in the short term and cause further depreciation of the shekel, although the surrounding uncertainty will remain high."

"Menahem" also indicates another reason that will affect the shekel in the near future: the upcoming decision of the Bank of Israel regarding the interest rate, "Another reason for the expected volatility is the approach of July 6, the date on which the Bank of Israel announces the interest rate, along with new economic forecasts that it will publish, which include the path of the interest rate. Typically, the interest rate rises as this date approaches."

A New Equilibrium Point

"Ran Sinai", the chief economist at "Ultra Finance", sees that the 3 shekels level could become the market's equilibrium point in the near term, and adds: "In our assessment, this move is not coincidental; rather, it is the result of three main factors. The first is the adjustments made by financial institutions following the sharp decline in the dollar's value in May, which forced them to rebalance their investment portfolios. It appears practically that some have chosen to increase their exposure to the foreign exchange market again, or at least to stop selling dollars in the quantities we have witnessed previously. This move has helped establish a floor for the exchange rate and support the upward correction."

The second factor is the interest rate environment in the United States. The latest macroeconomic data, supported by labor market stability, indicate that it is not expected that the Federal Reserve will accelerate sharply in cutting interest rates, as translated by Sada's Economy, and the interest rate differential in favor of the dollar continues to grant it a substantial advantage over the shekel, especially during periods of increased uncertainty.

The third factor is technical: the dollar's lowest levels recorded in May reflected an oversold condition. Once the pair surpassed the 2.95 shekels zone again, the stage was opened for a quick and sustained correction toward current levels.

And as translated by Sada's Economy, if the current momentum continues, we may see the dollar stabilize around the 3 shekels level in the coming days, making this level the new equilibrium point for the market in the near term. It is estimated that the dollar will trade by the end of the week within a range of 2.98 to 3.04 shekels.