Currency market: Foreign banks bought $100m on Fri; Dollar trading at NIS 4.80

The shekel is trading at NIS 4.80 to the dollar at the opening of options trade. This is a little higher than Friday's representative exchange rate of NIS 4.7990 and one agora higher than the NIS 4.79 at which the shekel traded most of Friday. The volume of options being traded is about 5,000 and the standards deviation has climbed again to 10% due to uncertainty in the market.

The shekel dollar exchange rate climbed on Friday after Standard and Poor's lowered its outlook for the Israeli economy from stable to negative Thursday. The lower rating drove foreign investors to inject demand into trade on Friday. Dealers estimate that foreigners activity on the currency market Friday amounted to about $100 million.

"Foreigners tried to 'push' the dollar above NIS 4.80 but the effort failed when sellers appeared at that level," one trader told us. Another trader estimated foreigners can continue to inject enough demand to "clean out" the NIS 4.80 level supply, which could lead to further shekel devaluation.

Investment bank Gift, part of the Ilanot Batucha group, estimated the failure of U.S. Secretary of State Colin Powell's mission to the Middle East could lead to further shekel devaluation, and the dollar could trade here above NIS 4.80. However, progress towards an agreement to decrease the violence and entry into a political track toward talks strengthen the shekel to trade at NIS 4.72 against the dollar. Gift mentioned that the current trading week is short due to Memorial and Independence Day holidays here, which could increase market colatility.