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The wave of terror attacks of the past two days will again put the local currency market to the test this morning. Will local dollar trading again prove relatively immune to the impact of security incidents? Or this time, will the terror attacks create a new level of uncertainty that currency traders cannot afford to ignore?

An initial indication of how the market may react was evident by the dollar-shekel call options traded yesterday on the Tel Aviv Stock Exchange that rose to reflect a dollar value of NIS 4.245. This value constitutes an increase of about 0.5 percent in relation to the representative rate for the U.S. currency that was set on Friday.

"If local traders do not buy dollars and drive up the market, then the foreigners will," a leading currency trader for a major foreign bank said yesterday. "For the first hours of trading, the dollar will move around NIS 4.25. The pace of its subsequent appreciation will greatly depend on Israel's response," the dealer added.

After a period in which the dollar's value was determined on the basis of macro-economic analyses, interest rates and speculation trends, the diplomatic-security factor is again coming to the fore - at least for the next few days.

"If there is a strong military response, something new that we haven't seen yet, the dollar will rise. If the army again carries out the same actions as it has in the past, and the response is moderate, the dollar could maintain its present level and even fall back to the level it was traded at last week," one market activist suggested.

But local traders realize that the foreign banks are likely to set the trend, as they have done on previous occasions this year. And this does not bode well for the shekel.

In recent weeks, before the latest terror attacks, some of the foreign banks began stocking up on dollars in preparation for another speculative round on the shekel. This acquisition of dollars was pursued at a careful pace, but the trend was clear. Among these foreign banks was Citibank, which passed along a recommendation to its clients to buy dollars in Israel at the current exchange rate and wait to cash in this investment when the dollar hits NIS 4.38.

In any event, foreign investors were already leaning toward gambling against the shekel; and the fresh pictures of violence broadcast by CNN, together with the bellicose statements by Israeli leaders, will undoubtedly bolster these sentiments. If Israeli tanks move forcefully on Palestinian cities, those who did not follow Citibank's advice will regret it.

Another factor likely to have an impact on currency trading is the financial crisis in Argentina. Although this crisis has been going on for some time, it seems to have now reached a new peak. Argentina is far from Israel and has problems of a different sort, but foreign investors do not necessarily see it this way. For them, it is just another example of a developing economy with basic financial problems that inevitably must yield to the laws of economics, thus benefiting those who wagered against the local economy.