There have been a number of reports this morning of increased fighting around Baghdad airport and any escalation in violence will certainly impact on the oil price and and ‘heavy positioning’ in the FX market.

Most of the big oil production is in the south of Iraq so we should not see a massive impact on the oil price unless fighting gets closer to there.

There will be conflicting influences at play in the FX market:

  • Higher oil prices is a negative for the Yen, as Japan is so reliant on imports;
  • On the other hand, the market is already very short of JPY and risk aversion usually leads to Yen buying;
  • Higher oil prices also benefits the GBP, NOK and CAD but as with the Yen, the market is also long of the GBP and NOK at least;
  • Risk aversion also usually favours the USD and the CHF.

I’m really not sure what to do in the currencies but looking for good technical entry levels to buy either Gold and Silver does seem to make sense.