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Beyond PIMCO Analysis of What If? There is a Strike on Iran Nuclear Facilities

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This question pops up in my mind every day for the last few weeks. What impact this will have on foreign exchange rates, if there is a strike on Iran nuclear facilities. Will it be like every time before with USD and CHF stengthening on safe haven buying? Or will this time be different and USD will weaken? Or will USD strenghen in line with a historic pattern initially and then plummet? PIMCO has given their opinion about the impact of such strike on oil prices, but it says nothing about currencies.

The argument for weaker USD may be that any such strike is, effectively, imposible without US support. Meanwhile, once unbeatable technological supremacy of US (and other developed nations) is slowly fading away. There are countries with highly uncertain, by Western standards at least, way of thinking in disposition of nuclear weapons. India, Pakistan have some, probably Iran, North Corea has some (let’s hope Kim has enough submissive girls around him so he does not feel and urge to prove his manhood with nukes). It is highly likely that certain groups (aka terrorist groups) have them and, if not, certainly can obtain them in various ways with sufficient financial backing they have. And they have a way to take the material onshore US (if no other way, then the same way as large shipments of drugs are taken into US — remember Kevlar-covered submarines confiscated from Colombian drug cartels).

All this is bad for, first of all US. The risk is there more than anytime before and US is one of the first targets. Unfortunately, system trading can’t handle such black swan events,  like attack on Iran, well. System trading is the most succesful when there are repetitive patterns in the price action; it is the least useful when there is once in a lifetime event like a major attack of any kind.

However, my bet is that, if such attack takes place, the USD strength, if any, will be short-lived and safe haven buying will be directed mostly to Swiss frank, Norweginan kronor and probably AUD and NZD.

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Written by A.S.

December 2, 2011 at 3:46 am

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