Shekel Trades On Firmer Footing But USD/ILS Risk Reversals Climb

USD/ILS has lost altitude after Wednesday's volatile session dominated by headlines surrounding a key Knesset vote. It is worth noting, however, that the move was facilitated by broader greenback sales.

• Locally, the election of an opposition candidate to a judicial selection panel has been interpreted as a positive development, which keeps the prospect of judicial overhaul talks on the table.
• However, there are reasons for caution, as yesterday's vote on the matter exposed Prime Minister Netanyahu's weakness and drew the ire of his hardline allies, raising the risk of government instability.
• Spot USD/ILS trades at ILS3.5545, down 268 pips on the session, after printing a new three-month low at ILS3.5521. Further losses past Mar 28 low of ILS3.5287 are needed to reinforce the bearish case.
• Today's USD/ILS sales are at odds with a bullish shift in sentiment of option traders. USD/ILS risk reversals have surged across the curve, even as short-end tenors have corrected earlier upswings.
• The focus turns to Israeli CPI inflation data, due at 16:30BST. Headline inflation may have stayed at +5.0% Y/Y in May, according to a Bloomberg poll of economists.