Political Risk Headache Puts Shekel On Back Foot Again

The shekel started the week on the back foot as the collapse of government-opposition judicial overhaul talks applied pressure to local assets. Spot USD/ILS trades +454 pips at ILS3.6019 at typing, while the shekel sits at the bottom of the EMEA pile.

• From a technical perspective, bulls will seek to take out ILS3.6522, which capped gains during a rally driven by an eventful Knesset vote last week. Above there opens the way to ILS3.7551, a cyclical high printed on Jun 2. Bears see the 200-DMA at ILS3.5479 as their initial target.
• USD/ILS implied volatilities have climbed across the curve, with one-year tenor hitting its best levels since Apr 20, even as today's moves were more pronounced in the shorter end of the curve. Risk reversals have indicated strengthening bullish sentiment, with one-month tenor virtually erasing its monthly loss.
• PM Netanyahu unveiled plans to unilaterally press head with parts of his contentious judicial overhaul after the opposition froze negotiations on the matter. According to Israel's public broadcaster Kan, he will ditch other elements of the initial plan, but the effective collapse of negotiations threatens to exacerbate existing tensions.
• Political risk abounds in Israel this week, with members of the Bar Association set to elect their senior executives tomorrow. The outcome will affect the selection of the BA's representatives in the Judicial Selection Committee, with the government closely watching if its favourite (Efi Nave) becomes head of the association.
• Elsewhere, the Bank of Israel will publish its latest CPI forecast tomorrow.