Dollar Firms as Libya Erupts

Today’s Asian session saw a good deal of action as the US Dollar surged higher against a backdrop of unrest and mounting violence in the Middle East. As protests in Libya turned bloody in the latest round of unrest in the Arab world, Libyan President Quaddafi seemed to be clinging to his power by a mere thread. The long time leader of the nation ordered his air force to attack anti-government protesters, prompting a flight to safety in the markets which benefitted the dollar and yen. Meanwhile foreign workers were ordered out of the unstable nation, leaving a vacuum in oil production which shot crude oil higher on the day.

The EUR/USD hit the slide at 1.3680 and landed near 1.3565 for session lows,



while the GBP/USD dissolved by 75 pips to 1.6150 on the flight from risk. Across Asia the equity markets were all deep in the red by 1% to 2% on the day, dragging the yen crosses lower as well. EUR/JPY saw 112.90 lows after a start near 113.70, and the GBP/JPY bottomed out at 134.10 to record a 70 pip drop.

The bad news didn’t end there as tragedy struck the Christchurch region of New Zealand in the form of a 6.5 earthquake that devastated the region and sent the nations currency into a nose dive worth almost 2%. The NZD/USD collapsed under the weight of the devastation, falling 140 pips from 0.7640 to .7490. Conversely, AUD/NZD saw fresh highs for 2011 near 1.3375 and the NZD/JPY dove to 62.40 lows after beginning the day closer to 63.40.

USD/JPY was the final volatile piece to the puzzle as it saw lows near 82.80 as the yen firmed with safe haven flows, but the mood was upset by a Moody’s downgrade of Japanese debt which sent the pair higher to 83.40.

Clearly the geopolitical drama that is unfolding in the Middle East with Libya currently taking center stage will be the general focus of currency markets for the near term. As I stated last week, if the dominos keep falling it will be interesting to see if Saudi Arabia or China are aligned to take a hit. Already there are murmurings out of both nations of the potential for unrest. These are the topics that will be dominant as the dollar firms and risk dissolves.

Source: FOREX.com

22.02.2011