Thursday, July 13, 2006

When Real Leadership is Needed it's Nowhere to be Found

EUR/USD 1.2686 / 89 Hi 1.2733 Low 1.2684
USD/JPY 115.46 / 50 Hi 115.53 Low 114.99
EUR/JPY 146.49 / 53 Hi 146.85 Low 146.25

Suddenly the world is crowded with BoJ doubters. Will they after all? And so the scramble to exit short USD/JPY positions propelled the USD a little higher yesterday. Tomorrow the question will be answered and we can get back to the real world. Which will be a relief. Those keen to short the JPY should pause to reflect a little on current fundamentals and they are not exactly USD positive right now. USD strength continues to represent a selling opportunity.

Nasty news, market jitters and a leveraged market have seen global Stock markets take a tumble. A weak performance in Japan pre-BoJ and post-Bombay bombing, the failure of the U.S. market to extend its two day rally, the spike in OIL, the crisis in the Middle East and expectations of tighter monetary conditions world wide all make for a stock market unfriendly world. Further weakness looks likely.

Indeed, selling pressure could accelerate as the Geopolitical situation deteriorates. And there isn't a cool head in sight. While Israel escalates its full-scale military assaults on its neighbours, world leaders are planning their Summer holidays or giving out medals to football players. Except at the White House, of course, where spokesmen are helpfully suggesting that the real trouble makers in the region are Iran and Syria. In fact the White House is now holding Iran and Syria "responsible for.... the ensuing violence". So I guess the Red Card should have gone to Materazzi.

And Iran has just been referred to the U.N. Security Council (the vote was last night).

This is not looking good. Unless you think that increased violence is a good thing because it gives a chance to the guys with the biggest guns (and we know who they are, don't we ?) to seize more land (or oil wells) and take control of larger parts of the globe. There have been hints that this just might be the game plan. If that sounds crazy, it's because it is. But that doesn't mean it isn't happening.

So the long, hot Summer continues. All the politicians with an ounce of sense are sitting it out on the sidelines and hoping that the whole situation just goes away. Which is a good strategy if you are clueless. But the results might be disappointing.

OIL 75.77
GOLD 653.20

More trouble in the Middle East, weak oil inventory numbers in the States and reports that Nigerian pipelines have been attacked have seen OIL break through record highs. It was not a spectacular move, but more upside is expected.

GOLD, of course, has been the major beneficiary of increased global tension and unrest. The uptrend continues and falling global stock markets is only going to increase safe haven GOLD buying. In a world of uncertainty very few alternatives look attractive.

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