Dollar Zigs Instead of Zags

News reports quoting Israel's foreign minister's claim that two Iranian warshipswould soon pass through the Suez Canal sent markets into a "fear trade."

Stack of U.S. hundred-dollar bills
Stack of U.S. hundred-dollar bills

But the dollar, usually a safe haven play in tense times, moved lower instead of higher.

Israeli Foreign Minister Avigdor Lieberman said the Iranians were sending ships through the canal for the first time in several years in what he called an act of "provocation." He said the ships were heading to Syria and were expected to cross the Suez tonight. The comments were reported in the late morning New York time.

Oil and gold immediately moved higheron reports of the comments, which were delivered in a speech in Jerusalem. Treasury prices rose, and stocks lost some of the morning's gains. Some of these moves were later retraced.

"Mildly bad is dollar negative. Really bad is dollar positive," said Brian Dolan of Dolan said at around 11:20 a.m. New York time, as the dollar sold off, the euro popped to 135.60, and later hit a high of 1.3586. Dolan said the euro hit technical resistance in the 1.2575 to 1.3585 area.

"It's odd when this happens," said Dolan of the dollar's decline. He said the trade out of the dollar also reflected an immediate concern about the potential for U.S. involvement if the situation were to develop into something more troublesome than a comment from the Israeli foreign minister.

The Associated Press later reported that warships must notify the Egyptian canal authority 48 hours before crossing and it was not yet notified. Iran's semi official news service, Fars, apparently first reported on Jan. 26 that Iranian navy cadets were to conduct a year-long training mission and would travel via the Gulf of Aden, into the Red Sea, through the Suez Canal and into the Mediterranean Sea.

Deutsche Bank's chief currency strategist Alan Ruskin said the immediate market reaction was to flee to the safety of the Swiss franc. "..this started to drag the EUR along for the ride, triggering stops on short EUR positions versus the USD," he wrote.

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