USD/ILS: Shekel analysis as Moody’s warns about Israeli protests

The Israeli shekel weakened this week as violent protests continued in the country. The USD/ILS exchange rate rose from a low of 3.5531 on July 19th to a high of 3.7213 as traders assess the impact of these protests.

Moody’s cautions about protests

Israel has descended into chaos after the parliament passed the controversial judicial overhaul bill pushed by Benjamin Netanyahu. This situation has become the worst crisis in Israel in years and it could get worse.

The government believes these new rules are needed to reduce the power of a court that is seen as highly activist that pushes left-wing agenda. Critics, on the other hand, believe that the bill will cripple the court and help to undermine minority groups.

It is not clear how these protests will impact the Israeli economy. In a note, analysts at Moody’s warned that the protests pose a significant risk to the economy. It now expects the economy to grow by 3% in 2023 and 2024. The note did not include a negative effect from a prolonged crisis.

Most credit rating agencies, including Fitch, S&P Global, and Moody’s have reaffirmed the country’s credit rating as stable. They nonetheless believe that these protests could lead to more weakness of the economy. 

Meanwhile, the Bank of Israel maintained interest rates steady at 4.75% in July but warned that it could resume hiking if inflation remains higher for a while. That rate was the highest level since 2006. The central bank governor said:

“If we see the environment does not converge in the way we thought … we won’t hesitate to keep raising the interest rate. We estimate that we will need to keep the interest rate at a fairly high level for a while.”

USD/ILS technical analysis

USD/ILS chart by TradingView

The USD to Israeli shekel has been in a bullish trend for a while. The pair formed an ascending channel that is shown in black. This channel connects the lowest and highest levels since August last year.

It has moved slightly above the 25-day and 50-day moving averages while the MACD is loitering at the neutral point. Therefore, the pair will likely continue rising as buyers target the upper side of the channel at 3.80.