Ups and downs
Yossi Re'em Amon
Analyst: We're experiencing rebirth of US dollar
In his weekly, currencies analyst in Finotec Trading says central bank should consider cutting short-term interest rates immediately to curb shekel's rapid appreciation and aid in containing inflation

This week, trading on the Tel Aviv Stock Exchange ended with positive trends.


The TA-25 index rose by 0.8 percent to 865.81, the TA-100 increased by 1.5 percent to 881.49, and TelTech 15 rose by 3 percent to 366.6.


The US dollar continued to weaken against the shekel, and the exchange rate was set at NIS 4.2380 on Friday.


Yossi Re'em Amon, currencies analyst in Finotec Trading explained: "In the past several days we have been experiencing the rebirth of the dollar, both in the home front and in overseas against the major currencies. There a few elements that drove the markets as the fact that the dollar found support on a sharp upward revision in US payrolls data, therefore softening expectations that the Federal Reserve's next move would be to cut its short-term lending rate next year.


"Add to that remarks such as Richmond's Fed President Jeffrey Lacker, who said on Wednesday that the central bank has to be "quite vigilant"
to ensure inflation does not stay elevated, thus taking a different tone to the much anticipated rate cut (from June 2006 a 0.25 percent increase) to a saying by numerous analysts that rates will be cut only in the middle of 2007 (June meeting) by 0.25 percent and maybe once more towards the end of 2007 as opposed to the much regarded thought (of only a week ago) that rates might be cut as early as the end of this year by 0.25 percent.


"As such we are now seeing this change being implemented in the trades executed in the past week of trading where traders are favoring the dollar and relinquishing their dollar shorts to much favorable dollar longs. Only in the past week of trade we have seen the EUR/USD decrease from a high of 1.2714 on Friday 06/10 to a low of 1.2500 on the 11/10 not managing to break below to levels mid July 2006.


Inflationary fears  

"On the euro front we should be seeing an even tighter trading range from 1.2500to 1.2600. Further market direction will be drawn from Thursday's US Beige Book where traders will look for additional clues on the inflationary levels tested.


"These inflationary fears that have resurfaced in the US have taken their tolls on the shekel too. We have been seeing the market rebound from the low levels of 4.2258 on Friday the 6th to today's (Thursday the 12th) high rate of 4.2720 working its way up to the previous support level of 4.29 which most likely transform into a resistance level (as support and resistance levels tend to change roles upon a break).


"As a reminder, the shekel is regarded to be heavily boosted by a current account surplus and a positive interest rate differential of 0.25 percent (5.25 percent USA-5.50 percent Israel) that may be or may not change in the upcoming meeting of the Israeli central bank on the 23rd of October. The central bank should consider cutting short-term interest rates immediately to curb the shekel's rapid appreciation and aid in containing inflation," he concluded.


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