Shekel Strengthens Despite Political Turmoil

The spillover from upbeat Chinese PMI data weighed on USD/ILS this morning, allowing the pair to move away from recent cyclical highs, as the EM space showed some strength. This coincides with a return of the RSI below the overbought threshold. The index now sits at 65.8 and will be watched for a close below the 70 level.

• Fitch affirmed Israel's sovereign credit rating at A+ with a stable outlook today, but warned that the contentious judicial reform could harm the nation's credit profile. It added that implementing the proposals of some coalition members to weaken the central bank's autonomy "would reduce the credibility of Israel's policy-making, currently a rating strength."
• The government appears determined to push through the controversial reforms. Parliament took further steps towards the adoption of some key bills today, as the police violently dispersed protesters in Tel Aviv. Tensions surrounding the judicial reform coincide with escalating West Bank violence and increasingly combative rhetoric from far-right Cabinet ministers.
• Bloomberg ran a headline noting that Israel's 5-Yead CDS crossed above 55bp today, reaching the highest level since 2019, as the ongoing political crisis has boosted the country's risk premium. USD/ILS implied volatilities have extended their pullback from cyclical highs but remain at relatively high levels.
• Spot USD/ILS last deals at ILS3.6186, down 347 pips on the session, with bears looking for a dip through Feb 21 low/23.6% retracement of the Aug - Feb rally at ILS3.5754/40.