USD/ILS likely to reach 4.09 in Q1 16

An on hold and patient BoI would ordinarily have reduced conviction of being long USD/ILS. However, USD/ILS continues to trade far below levels implied by rate differentials. Rate differentials and FX were closely correlated until 2012, after which there was a clear decoupling. 

"Sterilised interventions are expected to continue and the rate differential to widen in favour of the US, with Fed liftoff in March 2016 and the BoI expected to follow only in H2 2016", says Barclays. 

These interventions, starting in 2013, became increasingly aggressive in 2014 and have allowed USD/ILS to move back towards more normal levels. 

"As such, there is more room for ILS weakness, and it is forecasted at 4.09 in Q1 16. Long USD/ILS spot with a target of 4.10 is recommended", added Barclays.