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Gerry Davies reports that there’s a rumor about the death of North Korean leader Kim Jung Il. This could explain why North Korea attacked South Korea with shells, killing a few people. Kim Jung Il’s heir, Kim Jong-un,  might want to show that the North is still strong and that there’s a new guy in town by initiating this severe border clash.

Update December 19th, 2011: North Korean television officially announced the death of Kim Jung Il, that suffered from “physical and mental stress” due to his job. He died already on Saturday, December 17th. The veteran autocrat leader’s son will take over, but he might have a power struggle with the military. These internal troubles could lead to regional tensions in Asia. South Korea and Japan are on the watch. The tensions weighed on the Japanese yen and the Australian dollar, while strengthening the US dollar.

This could also come on the background of a new uranium enrichment facility discovered in North Korea. The South Korean political elite is hiding in underground bunkers. The Korean central bank held an emergency meeting after the attack.

Note that this is only a rumor and that it hasn’t been confirmed. At the time of writing, the North Koreans haven’t commented on the incident, while all the world is talking about it, and there are already calls from  Washington, Beijing and Moskow to defuse the situation. A full scale war is definitely unwanted, especially with North Korea’s nuclear arms.

Update, 11:45 GMT: North Korea claims that the incident in the island of Yeonpyeong was a response to the big naval  exercise made by South Korea and the US. The American 7th fleet based in    Yokosuka, Japan is in a state of alert. The Japanese want a firm military response. This is the second North Korean offensive this year. In March, a North-Korean torpedo sank the “Cheonan” – a South Korean vessel, killing 46 sailors.

Kim Jung Il has been sick for quite some time, and has avoided public appearances. Some of his official pictures from important events seem to have been heavily-“photoshopped”.

The dollar strengthened across the board on the initial news of the incident.

AUD/USD seems weaker than other pairs due to this breaking news.

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