Two big headlines dominated the news waves today:

  1. Oil surpassing the critical psychological mark of $100 a barrel due to violence in Nigeria, ongoing dispute between the U.S. and Iran and the shortfall of oil OPEC production projections.
  2. Gold surpasses the vital $850 barrier topping out at $859.30 which represents a high not seen since January 1980 due to the rising of geopolitical tensions and a weaker dollar.

How does this affect the currency markets?

With the rise in oil, this will surely indicate an eventual slowdown in global growth due to rising energy costs and given the recent geopolitical tensions arising in Pakistan and Nigeria , this has given rise to exit of risky assets such as the carry trades and a flight to safe haven assets such as gold. As seen in today’s light trading, the Japanese Yen has gained in a major way in light of these events representing an unwinding in the carry trades and the uncertainty in the global markets. Judging from the charts, the daily trend lines for the majority of Yen crosses have been breached and the eventual decline of the DOW below the 13,000 mark stipulating further drops will continue in the near foreseeable future. Below is a USD-JPY daily chart:

USD-JPY

I fully expect price to decline to the lower depths at 107.00 regions which was a previous 6-mos low for the pair given that the continual chaos in Nigeria/Pakistan and Gold possibly running up another $20-30.00 on momentum as the majority of market makers will be returning from their long holiday vacations to participate in the rapid decline.

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