Analyst: Weakening of dollar benefits individuals
In weekly analysis of Tel Aviv Stock Exchange, Senior Currencies Analyst in Finotec Trading, Yossi Re'em Amon says, 'We have encountered inevitable – support level has broken,' but projects interest rates will remain static
This week, trading on the Tel Aviv Stock Exchange was affected by the strengthening of the shekel and the record high listed by the American Dow Jones index.
On Tuesday, the Dow Jones listed a new record of 11,727.34, a level listed for the first time in some seven years. This figure surpasses the previous record listed in January 2000.
This week's trading in Tel Aviv opened Tuesday after Yom Kippur. At the end of the shortened, three-day trading week, stock market indexes measured increases in two out of three indeces: The TA-100 rose 2.6 percent, the TA-25 increased 2.6 percent, and TelTech remained the same.
The US dollar continued to weaken against the shekel and is traded at about 4.255 shekels to the dollar – the lowest exchange rate in some five years.
According to Yossi Re'em Amon, Senior Currencies Analyst in Finotec Trading, "Thursday we encountered the inevitable. As stated last week in our weekly article, the much regarded support level of 4.29 – a support level that has not been broken in the past three years – has broken."
"Wednesday's close of 4.27 was seriously broken as trading began and drove the dollar further down to a low of 4.2424 only to close the official day of trading higher at 4.2550", said Re'em Amon.
"This break from 4.29 to 4.25, a decrease of 1 percent, concludes a year-to-date decrease of 9.5 percent and opened the door for further decreases with the next visible support level at 4.20 and further 'down the road' to 4.00 - levels that the market experienced during the year 2000," he added.
"Although this level sits well with the 'local crowd' -the average Joe- as the cost of electrical appliances, vehicles, airline tickets, prices of apartments for sale and rent are all priced in dollars, giving consumers the edge, it does not sit too well with exporters. They are experiencing rough times and their goods have increased in value since the beginning of the year by almost 10 percent making it even harder to sell around the world while taking into account the fact that we have just come out of a war in Lebanon," said Re'em Amon.
Interest rates
"There is another aspect we should be looking into – the difference in interest rates between Israel and the US. Currently, in the United States, the rates stand firm at 5.25 percent since the June 29th meeting and will supposedly remain there until the end of 2006 only to be cut by 0.5 percent during 2007. There are speculators that assume that rate cuts of 0.25 percent might be seen during this calendar year," he said.Re'em continued on to explain the Bank of Israel's policy by which Israeli interest rates have remained relatively static:
"In Israel, rates are also standing firm at 5.50 percent, and, as in the US, have not risen in the past two announcements made by Governor Stanley Fischer because he aims not to allow a bigger gap in interest rates between the two countries to be created. This is because the bigger the gap, the more short term deposits there are in favor of the country with higher rates thus strengthening its currency even further (a process that induces inflation). Therefore, it would appear that in the October meeting we will either see rates kept static or cut by 0.25 percent to try to maintain a minimal spread between the two."
"In the coming week we should see minimal trading volume as the Israeli market is affected by the holiday and therefore will be stuck in a trading range that will probably be between 4.2250 to 4.2650," he added.
