…but I don’t think the market has paid this issue enough attention in recent weeks. To the extent that geopolitics have been a focus (beyond the financial geopolitics like reserve currency debates and G20) of late, most has been toward North Korea’s impending missile test.
Flying below the radar (perhaps even literally) has been the drawn-out process of forming a new Israeli government. The new government is both more hawkish and less deferential to the Obama administration than the previous government.
Should Israel strike Iran to cripple its nuclear program, you can bet there will be at least a short-term spike in oil prices, not what the global economy needs as it tries to gain a toe-hold after a long slide.
Should the focus shift to the Middle East, expect risk aversion to move back to the fore.
Risk aversion is far from the market’s mind this afternoon with EUR/JPY successfully overcoming the 135.00 level and USD/JPY comfortably above 100.00. 100.55 is next resistance for the greenback.
