Sunday was one tumultuous day in the dollar shekel arena, and it shows in trade figures: total turnover was nearly 70,000 options, indicative of the fact $700 million worth of foreign currency positions exchanged hands, and the shekel devaluated further to NIS 4.7 to NIS 4.72, depending on the option.

Though a 70,000 option turnover may not be a record, but for a Sunday, in which no foreign currency trading takes place in the banks and around the world, it is exceptional and can have but one meaning: the capital market continues to increase its exposure to the dollar.

While local and foreign banks and export companies prefer to buy and sell currency to one another, the capital market (mutual funds, pension funds, insurance companies and portfolio managers) prefers to work through the stock market. These very institutions were yesterday's movers and shakers.

Dealers reported a single institutional investor responsible for most of the purchases. Unlike the spot market, in which it is easier to identify the source of the transaction, this time players were unable to name the buyer. Yet it was clear his purchases inspired other investment managers, who followed his example and bought dollar exposure for the exorbitant price of NIS 4.7, which is apparently why it happened so high today, as some dealers inactive yesterday had to get their option portfolios in line with the new rate.

At the macro-economic level, news that made it to the markets acted against the shekel; terror attacks, sharp stock market declines triggering fears of foreign investors flight, the many responses to the budget deficit less than a week after the budget's approval and the news of possible capital gains tax, all bore heavily on the shekel. For a few weeks now reports have had monies are leaving the country, a trend that unless stopped, could have a strong psychological effect.

Increasing the dollar component in the public's portfolio now of all times by either portfolio managers or insurance companies, is no certificate of merit to the investment manager. With a nore-than-10% climb % in less than two months, it is not far fetched to say these managers missed the boat and most of the dollar gain, and chose instead to invest in decrepit shares in Israel or abroad.

Yet under pressure from their customers, and especially due to reluctance to explain themselves to their customers in case the dollar hits NIS 5, the capital market increases its exposure to the dollar using every means available: cold hard cash, currency options, bonds abroad, and as we saw last week, buying euro-linked bonds issued by the Israeli government. These bonds were originally intended only for foreign investors, but in less than two days they found their way into the portfolios of local institutional investors.

Will it eventually turn out they bought their dollars at peak price? Looking at the dollar-shekel graph since the interest rate cut in mid December shows the shekel, undisturbed, shed about 40 agorot without as mcuh as a technical correction. Such a graph usually indicates but one thing: On the one hand, the shekel can continue to slide just as fast. On the other hand, any correction or recovery could be extremely violent.

There is not one financial sector in Israel today that has the strength to halt the shekel free fall. The public may not be buying massive amounts of dollars, but it is certainly making no return to shekels. Israeli banks are afraid to bet on any trend, and are trying to benefit from the daily fluctuations. The foreign banks, that missed out on the recent climbs, are definitely not going to come to the market to buy shekels. Exporters are in no hurry to sell what little foreign currency they have before the latest possible date. Foreign currency borrowers, who should now become more interested in dollar credit, think the risk is still too big compared with thin gains on the minute interest rate difference between the dollar and the shekel. Money from abroad ¿ foreign investments or Wall Street issues ¿ are not even an issue.

For all these reasons a consensus exists today among foreign currency market players, which is the dollar will keep rising until some significant event stops it. It will be a move by Bank of Israel, probably an interest rate increase. Question is when. Two weeks ago the governor of the central bank said an NIS 5 dollar exchange rate doesn't scare him one bit. Does NIS 5.01?