Dollar rising to new highs against geopolitical conflict

“It was the best of times, it was the worst of times, it was the age of wisdom; it was the age of foolishness.” I always recall this line of Charles Dickens, especially of late with markets staying flat and not reacting on risk events.

Central banks have paralysed the financial markets. When the U.S. released a new series of sanctions on Russia and the MH17 was shot down, safe-haven assets rose and stocks fell, but the trend only lasted for a day and recovered in no time. Scanning across world, in addition to the Ukraine crisis, Gaza conflicts have escalated, the ISIS has dragged Iraq and Syria into chaos, Argentina is confronting another potential default which may cause a rippling effect in South America, and Southern Europe’s economy is still dire.

And yet, the market is calm.

Is it the best of times when stocks keep rising without drawbacks? Is it the worst of times when markets lose their vitality? Shall we follow the trend and suppose that all those risk events will be under control and have limited impact worldwide? Or is this belief just foolishness?

A sign that may provide us clues is the US Dollar, which has strengthened since last July amid those risks. But will this trend continue?

The Euro slid by 0.3% against the greenback to 1.3429, confirming the breakout of a supporting area around the former low of 1.3476. The next support level will be at 1.33 – the low of October 2013.

Since the Reserve Bank of New Zealand raised its benchmark rate to 3.50%, the Kiwi dollar has fallen 150 pips to 0.8550, where the uptrend line has been since the beginning of February. We need to watch this support area closely, as it will determine whether the carry trade will continue.

The Asian markets were mixed on Friday, with Japanese stocks inspired by the weaker. The Nikkei Stock Average surged 1.13%. The Australian ASX 200 closed flat at 5584 whilst the Shanghai Composite gained 1.03% to 2127. In the European stock markets, the FTSE closed 0.44% lower, the DAX slumped 1.53%, and the French CAC lost 1.82%. U.S. stocks were in a sea of red as the earnings reports of Visa and Amazon were downbeat. The Dows slid 0.72% to 16961, pulling back below 17000 integer level. The S&P 500 edged 0.48% lower to 1978, while the Nasdaq Composite Index lost 0.5% to 4450.

No important data releases for today – only U.S. Flash Services PMI released at midgnight tonight.