Is Citigroup Trying to Salvage Their Shekel Position
Written by: Aaron Katsman | July 17, 2007
By Aaron Katsman
www.IsraelNewsletter.com
As I posted over a month ago, the Israeli Shekel continues it’s drop against the US Dollar. Today it’s trading right around the important psychological barrier of 4.30, and a break above and we may just see the greenback head all the way back to the 4.40-4.50 area. Strat’s Place says according to the Economist’s Big-Mac index, the shekel is still about 10% overvalued.
Last week UBS admitted their mistake when just a few days earlier they said the USD stength was temporary and it was time to go long the Shekel. Well, it took less than a week for them to disclose that they had closed the long shekel position and took a loss. Now we have Citigroup stepping up saying in effect the exact same thing. They have made a comparision to the Polish Zloty: sighting similarities in both trading patterns and the domestic economic situation.
As I predicted, June inflation numbers picked up to 0.7%, surprising economists. Not sure what the big surprise was. There has been an undercurrent of inflation running at about 4% for a while, and since the USD strengthened, and the USD is over 30% of CPI, it shouldn’t have been much of a surprise. Note that the Bank of Israel has been doing whatever they can in trying to talk up the Dollar. Some may expect the BOI to start to raise rates to fend off inflation, but I wouldn’t hold my breath. The BOI wants the Shekel to continue it’s depreciation, to help local exporters who claim to have lost hundreds of millions of dollars due to the strong currency.
Let’s hope Citigroup isn’t pulling a UBS and trying to pump up the Shekel to save their losing position. After all, a large global investment bank wouldn’t do that, would they?
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Aaron Katsman is the lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com
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