The 411 on Libya and Yemen

Earlier this year, we saw some political uprisings in Egypt and Tunisia. These revolts inspired movements in other nations in the Middle East. For those of you who have been too busy watching American Idol or rooting for your alma maters in the NCAA March Madness, here’s a short update on what’s been happening in Libya and Yemen.

Libya

Been watching the news lately? Then I’m sure you’re at least partly aware of the unrest in Libya.

All the commotion can be traced back to one man: Gaddafi, a figure feared and widely opposed in his country. His regime has brought civil unrest to Libya, causing protestors and opposition groups to rally for an uprising similar to those in Egypt and Tunisia.

In response, Gaddafi has not only refused to step down, but he has stepped up his villainous game by responding with force and violence against protesters. He has managed to take control of Benghazi, where most of the rallies against him have been stages, and has recently advanced towards the city, destroying everything and everyone in his way. Of course, the United Nations isn’t one to let such injustice continue, so it has stepped in to protect Libyan civilians.

Seeing as how the U.S., U.K., and France bombed the heck out of Gaddafi’s forces over the weekend, I wouldn’t be surprised to see tension escalate in the coming days. Gaddafi has never been one to back down, and he has actually already made threats to retaliate against the Allied forces’ troops. But hopefully, this matter will be resolved in a peaceful manner and no more blood will be shed in the coming days.

Yemen

Meanwhile, another long time ruler, Yemeni President Ali Abdullah Saleh, is quickly losing support on both the local and international levels. For those of you not in the know, Saleh and his family have been in control of Yemen for the past 32 years.

Inspired by other political protests around the world, Yemeni citizens have taken to the streets to call out Saleh. Unfortunately, this has led to a violent and bloody outcome where unarmed civilians have been victimized.

Over the past couple of weeks, many top generals and cabinet members have given up their support for Saleh and joined the movement against him. Longtime supporters like the U.S. and Saudi Arabia have also grown tired of Saleh’s acts, and chances are they will pressure him to end this conflict peacefully by stepping down and allowing democratic reform.

However, just like Gaddafi, Saleh does not want to let go and is hanging on to his power for dear life. He is relying on an elite task force (yep, just like the ones you see on T.V.) to protect him until he hands over the power to a “new government” that he will personally create.

In due time, I believe that Saleh will realize that he has no choice but to resign. Even Saudi Arabia, who has been his biggest benefactor in the past, isn’t a sure shot to have his back now. Chances are that the tension will not escalate to the level of the Libyan crisis and that in next few days, Saleh will finally step down.

What does this mean for us traders?

Now that concerns of a nuclear meltdown in Japan have started to fade, it seems that the focus of the market has shifted once again to the political unrest in the Middle East. This could mean two things for the financial market.

On the one hand, if the protests continue, we could see an increase in the general level of risk aversion in the markets. This means that the gains of the euro and the pound could be limited despite the possibility of rate hikes from the ECB and BOE.

On the other hand, commodity-based currencies such as the Aussie and the Loonie could continue to experience nice rallies. Remember, the Middle East is comprised of some of the world’s top producing oil countries, which means that any event that negatively affects oil production and supply could lead to an increase in prices.

I don’t know how it’ll all play out in the long run, but it seems that the market is heavily favoring the currencies that have a tight positive correlation with oil for now. Hmm, long comdolls anyone?