USD/Israeli New Shekel - 29/11/2018

Micro Analysis

29 November, 2018

For General Information only. Not Intended to Provide Trading or Investment Advice. Your Capital is at Risk.

Fundamental overview: US dollar gained in value against other currencies in the recent period. Trade disputes between USA and China, the Federal Reserve path to a neutral interest rate policy which is conducted through interest rate hikes and balance sheet reduction put some pressure on the US stock market. A strong US dollar was not warmly welcomed by the US stock market and Wall Street investment companies. In more than one month US indexes fell more than 10% which in technical terms is a price correction. Even US president Donald Tramp criticized FED chairman, Jerome Powell for high interest rates. It is expected that the Federal Reserve will increase its interest rate at its next meeting in December. However, given the current situation on financial market, the FED is now considering the number of interest rate hikes in year 2019. At his last public appearance, Federal Reserve chairman, Jerome Powel said that interest rates are close to neutral. This was a different message from just two months ago when the FED chairman said that its interest rate is far from a neutral level.

On the other hand, the Bank of Israel maintained its low interest rate policy. Since February 2015, it held its interest rate at a level of 0.10%. Surprisingly, on November 26, the Bank of Israel increased benchmark interest rate to 0.25%. Just two of the 12 economists polled by Reuters had forecast a rate hike. Israel unemployment rate is 4.20% and according to the Bank of Israel, inflation is stabilizing within the target range, while the economy is growing at a solid pace. Also, Bank of Israel officials said that even after increasing interest rates, monetary policy is still accommodative and that a rising path of the interest rate in future will be gradual and cautious. Additionally, in the upcoming period, the Bank of Israel will have a change of leadership. Prof. Amir Yaron will be the next Governor of the Bank of Israel. If he puts focus on the need for a balance in financial assets, his next steps will be to raise the interest rate in order to return it to normalization level.

Technical Overview:

If we look at the daily graph on the USD/ILS we can observe that this currency pair had price movement in upward daily channel. On November 22, the price of this currency pair tested the upper channel boundaries. Since then the price is in consolidation and after November 28, began a sharp decline. Based on recent price movements we could point to two possible scenarios:

Scenario 1: Recent price drop is the beginning of a bigger correction. If the price continues to fall, the 20 – day Simple moving average could be tested (red line on the graph). If the price continues to decline that next testing area is the pivot line of 3.6939. If the correction intensifies, then support 1 of 3.6673 could be tested. Technical oscillators RSI, Stochastic and MACD indicates a downtrend.

Scenario 2: Recent price drop is a short term reaction. After consolidation, the price of this currency pair could recover and once again start to test the upper level of trading channel. In that case resistance 1: 3.7518, could be tested. Uptrend could be supported by the fact that the current price is above 20, 60, 100 days, simple moving averages and pivot line of 3.6939.


USD/ILS Daily

Current Price:

3.7138

Resistance 3:

3.8363

Resistance 2:

3.7899

Resistance 1:

3.7518

Support 1:

3.6673

Support 2:

3.6209

Support 3:

3.5828

Pivot:

3.6939

Medium to long term technical outlook:

On weekly USD/ILS currency pair graph it is noticeable that the price of this currency pair moved into the triple top downward channel (black lines on the graph). Recent price movements indicate that a double top pattern could be in formation. Additionally, the price of this currency pair is near its highest value since February 2017. After recent highs, the price of this currency pair could continue to test highest values (price is above 20, 60, 100 day SMA’s), or to be more precise to move accordingly to Scenario 1 as depicted by the Weekly chart below. However, the price could also reverse its trend and start to fall. That price movement (Scenario 2 from the Weekly chart below) is supported by the fact that RSI and Stochastic oscillators are in deep overbought territory which could be a sign of a downtrend.


USD/ILS Weekly

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