Bias: Bearish-to-range-bound: EUR/ILS remains below its three-month average and sits in the lower half of the recent three-month range, signaling limited upside and potential drift.
Key drivers:
- Rate gap: The ECB’s policy rate remains well below the Bank of Israel’s, keeping a net gap that has supported the shekel’s strength against the euro, even after the latest Israeli move, a dynamic that matters for hedging costs.
- Oil: Oil prices are above their short-term average and show volatility, which tends to weigh on the euro more than on the shekel and adds hedging complexity.
- Macro factor: The euro-area outlook points to a cautious but steady ECB stance in 2026, keeping policy gradual and limiting upside for the euro.
Range: EUR/ILS is expected to hover within the three-month band, with occasional moves toward the middle if data surprises.
What could change it:
- Upside risk: stronger eurozone data or a more hawkish ECB signal could push EUR higher versus the shekel.
- Downside risk: another Israeli rate adjustment or a continued rally in the shekel could push EUR/ILS lower.
