North Korean Bomb Helps the Dollar?

North Korea performed a second scary nuclear test. This move scares the Western world. Did this ignite risk aversion? In Memorial Day’s thin trading, the dollar stopped falling and even made some small gains.

Forex trading began slowly this week. Americans are on holiday due to Memorial day. Also British banks enjoy the Spring Bank Holiday. But news was supplied from the far east.

North Korea, one of the most isolated countries in the world, performed a second nuclear underground test. The nuclear explosion was stronger than the first one, about three years ago. It caused an earthquake in a magnitude of 4.7 in Richter scale.

South Korea and Japan are afraid, very afraid. The Security Council is meeting for an emergency session. Barack Obama is deeply concerned.

North Korean Bomb and Forex Trading

Well, late on Friday, the dollar dived even deeper than during the week. Following last week’s trading, many articles “buried” the US dollar. A credit warning or downgrade seemed imminent.

With the early morning news from the east, the dollar stopped falling, and even made against some currencies. EUR/USD is under 1.40, GBP/USD is under 1.59 and USD/CAD went back up as well.

The explanation in times of trouble is risk aversion: safe haven currencies are receiving high demand. Yes, even if their credit rating is downgraded.

Tomorrow (Tuesday), when the market returns to full capacity trading, we’ll see if this effect continues, or if economic indicators start to kick in.

Do read my special coverage for the US dollar: Contraction or Retraction.

In the bad news pipeline: Dramatic elections in Lebanon and Iran, which might offer action in the middle east…