Options show shekel surging to NIS 4.74 per dollar - TheStreet

Options show shekel surging to NIS 4.74 per dollar

Speculators lifted dollar last week to adjust short positions, say dealers
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The shekel is surging in torpid shekel-dollar trade, say dealers.

The options price the dollar at NIS 4.74, down 0.25% compared with its representative rate of Friday, which was NIS 4.741. The standard deviation on dollar options rose sharply over the last week as the dollar corrected, to 9.25%.

On Friday the dollar strengthened to NIS 4.755 on heavy buying by Israeli banks. However, the trend reversed toward the closing of the Friday representative rate, leading the dollar to end at an official rate of NIS 4.741.

Currency market players surmise that the dollar's surge from NIS 4.625 to its current level, a steep increase of 10 agorot, is due to the "short squeeze" effect.

Speculators got caught short, one dealer said, "and when the market started to climb, they started to adjust their positions. That adjustment led to the dollar's steep climb over the last week."

Opinions differ on whether speculators are done adjusting their positions, leading to diverging opinions on the direction of the shekel this week.

The factors affecting the shekel-dollar rate this week include:

• Whether the Bank of Israel will change interest rates for August. It is not expected to do so, but to leave the rates at 9.1% on central bank sources.

• The expiry of July dollar options on Tuesday.

• The budget cut: The shekel had strengthened on assessments that the Finance Ministry was serious about budget cuts for 2003. It may be, but the government roundly rejected the cuts in debates so far. The treasury might "cut the cut", which could ultimately weaken confidence in the shekel.

• The perennial security situation: escalating violence has induced many market players to stock up on greenbacks.

Harel Capital Markets dealers believe the shekel will weaken further, lifting the dollar to a range of NIS 4.73 to NIS 4.80.

"The world markets are still demonstrating weakness, and in Israel we face hard decisions on economic matters and painful budget cuts that will change everything," said one Harel source. "The security situation is murky and the dollar is still attractive at these levels."

The currency market is closed on Sunday, but the shekel-dollar options trade can portend the trend when it reopens on Monday.

Sources at the Gift brokerage house, a member of the Ilanot Batucha group, pointed out that the demand for dollars coming from the local banks, not the general public.