Israeli Shekel Outlook (1-3 Months)– Geopolitical risks loom

Middle East geo-political risks continue to build up around Israel. It remains unclear what will be the impact of a change in regime across the border in Syria. It also remains unknown whether, and if the Assad regime is replaced, the new regime will be ISIS supportive or not. During the past ten years, most violence at Israeli borders has been associated with Hamas in Gaza and Hezbollah in Lebanon. Both of these organizations are not on good terms with ISIS. Analysts concern in the near term will be a combination of an expensive right wing led coalition and border escalation. 

"The fiscal deterioration as well as easy monetary stance will trigger USD/ILS to trade above 4.30 in the coming months. The main factor supporting the ILS in the near term will be balance of payments flows", according to RBC Capital Markets. 

The trade deficit in goods has improved significantly in the past two years. Meanwhile, a high tech boom in the US has been supporting services exports as well as M&A activity. In 2014, Israel registered its best current account surplus since the financial crisis.