Israeli Shekel price forecast 25 January 2021

2021-01-26

Shekel is ahead of the world! Forecast as of 25.01.2021Dmitri Demidenko

The higher the vaccination rate, the better the chances of opening the economy and the explosive GDP growth. In this regard, the Israeli currency should feel more than confident. The central bank does not like this, but will it have the strength to stop the [USDILS][1] bears? Let’s discuss this topic and make up a trading plan.

Fundamental Israeli Shekel forecast for six months

Janet Yellen’s return to the post of US Treasury Secretary made a double impression. People listen to her, but they are not afraid of her. Israeli Prime Minister Benjamin Netanyahu, referring to the “village teacher” call to play big, proposed expanding the package of fiscal assistance, including providing checks for 750 shekels for individuals, grants, and tax breaks for companies in difficult situations. Simultaneously, the Bank of Israel blew up the markets with colossal interventions, which led to a 4.5% [USDILS][1] rise on January 14-15. The regulator said that it is ready to spend an unprecedented $30 billion on weakening the shekel. It seems that central bank forgot about the “do not fight the Fed” principle. Who else but the former head of the Federal Reserve will remind him of this?

It was not for nothing that Janette Yellen said that the United States would stop any countries’ attempts to depreciate their local currencies to achieve competitive advantages. The ECB took heed of her words, removing the phrase that it is closely following the euro from the statements. But the central banks of Switzerland, Poland, and Israel pretend that they did not hear anything. Moreover, in the shekel case, intervention is almost the only way to take down the [USDILS][1] bears.

In January, on the pretext of rapid vaccinations, the Bank of Israel raised its GDP forecast to 6.3% in 2021 and 5.8% in 2022, which, along with a record current account surplus and foreign capital inflows into the country’s technology sector, makes the shekel a top favorite on Forex this year. Since the beginning of the year, the local TA-35 stock index has risen by 7%, surpassing both the [S&P 500][2] and the [EuroStoxx 50][3]. If it were not for the central bank, the shekel could already reach its highest level in the last 25 years. However, in my opinion, the [USDILS][1] bears still have a long way to go.

[USDILS][1] and Israel current accounts trends

Source: Trading Economics.

Since mid-January, I have continued to support the view that the main factor that investors need to keep an eye on is vaccination speed. I’m glad JP Morgan has advocated the same idea. The company believes the proportion of the population that has been vaccinated is the most important to track over the next 12 months. Goldman Sachs predicts [USDILS][1] will drop to 3.2 within a year, citing fundamental factors.

Indeed, Israel is ahead of the rest of the world in terms of vaccination rates. As of January 24, 30% of the population have been inoculated. If the current dynamics persist, the figure will increase to 80% by May.

Dynamics of vaccine doses made per 100 people

Source: Bloomberg.

[USDILS][1] trading plan for six months

In my opinion, no matter how much the Bank of Israel, annoyed by deflation, tries to take down shekel buyers, the success of currency interventions will be temporary and resemble the dead cat bounce. The faster the population of a country develops immunity from COVID-19, the faster the economy will open. Therefore, the quicker it will grow, and the national currency will strengthen. I recommend using [USDILS][1] highs for medium-term and long-term sales with targets at 3.14 and 3.07 for 6 and 12 months.

Price chart of USDILS in real time mode

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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