The US dollar continues to see a little bit of overhead resistance, but the overall fundamentals could be changing again.
USD/ILS
Looking at the US dollar against the Israeli shekel, it is a bit of a mixed picture. The fundamental tilt currently favors the upside, at least you would think so, lining up with a recent bounce off the 2.8 support level that we saw back in June. The primary catalyst is a clear monetary policy divergence, with the Federal Reserve pivoting to a more hawkish stance while the Bank of Israel has effectively resumed its easing cycle to stimulate an economy recovering from the military conflict.
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The monetary policy divergence should be good for the US dollar, but recently, and when I say recently, I mean in the last 2 days, we have seen CPI numbers in the United States miss to the downside, as well as PPI numbers, so it does suggest that maybe the Federal Reserve might have a little bit of room to wiggle. The most recent Federal Reserve meeting featured Kevin Warsh suggesting that the Federal Reserve is in a bit of a hawkish hold, if you will. The Bank of Israel is very dovish and easing at the moment, so while the technical analysis right now suggests that the 61.8% Fibonacci retracement level has held as resistance and the downtrend could resume, the reality is that the 50-day EMA being broken to the downside probably opens up more shorting, but it is also worth noting that there is a lot of support in that area. In other words, it will not be easy to break through there.
Geopolitical Shocks and Key Fibonacci Horizons
If the market were to break above the 3.05 level, then your next area is the 200-day EMA, followed by the 3.17 level. For what it is worth, this is a very low level for the US dollar against the shekel, going all the way back to at least 2018, as we have recently seen a major swing low.
So the question is, do we return to some type of normalcy? Ultimately, this probably comes down to the Federal Reserve more than anything else because one would have to assume, based on recent movement in the Middle East, the Israeli economy will still be subject to the occasional shock and possibly even attack.
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