Lobotomarkets, Korea and the US Dollar Edition

As 2008 demonstrated, there is little rhyme or reason to financial markets. Today, however, I must being your attention to an example of the seeming brainlessness of foreign exchange markets that defies explanation. Literally, forex is a lobotomarket. When a lobotomy is performed, you just don't know how the patient (victim?) will respond. In the current situation, the operation in question was the recent fatal attack by North Korea on South Korea. While certainly a headline-grabbing event, I am utterly bemused by the subsequent response from the foreign exchange market. In particular, the US dollar has rather inexplicably strengthened. Here is a typical explanation care of Reuters:

The euro languished at two month lows early in Asia on Wednesday, threatening to deepen its losses, while the euro zone debt crisis and heightened tensions in the Korean Pennisular helped underpin the dollar.

Longtime readers know that I am perma-bearish on the US dollar. Notably, there have been occasional dead cat bounces: whenever the Eurozone is in trouble such as now, for instance, or when repatriation flows back to the US increase given "political risk" abroad. Clearly, we have both at the moment with the troubles of Ireland and the Koreas resuming intramural proceedings. However, it's odd that other currencies besides the euro--not all of them, mind you--have followed it down (for now).

Simply put, forex dunderheads, why exactly would European countries--or many others for that matter--be at greater downside risk than the US from North Korean attack?

• The United States, not Europe, has nearly 30,000 troops stationed in South Korea;
• The United States, not Europe, is immediately obliged to defend South Korea in the event that war resumes on the Korean peninsula;
• The United States, not Europe, most strenuously raises the hermit kingdom's ire over nuclear weapons development;
• The United States, not Europe, has a massive Pacific Fleet whose main objective is to keep open the flow of commerce in the Asia-Pacific.

If full-scale hostilities emerge, the one on the hook for expending much blood and treasure should be clear to all:

OPLAN 5027-00

According to the 04 December 2000 South Korean Defense Ministry White Paper, the United States would deploy up to 690,000 troops on the Korean peninsula if a new war breaks out. The United States apparently had considerably increased the number of troops that would be deployed in any new Korean conflict. The figure had risen from 480,000 in plans made in the early 1990s and 630,000 in the mid-1990s. The latest Time Phased Forces Deployment Data for any contingency on the Korean Peninsula is comprised of 690,000 troops, 160 Navy ships and 1,600 aircraft deployed from the U.S. within 90 days.

So why would the currency of a country that's deeply involved in East Asia's security architecture be less vulnerable to recent events than that of an economic union that isn't? The commitments being touted above make Iraq and Afghanistan look like walks in the park; that much is obvious. Beats me, pal. Then again, if logic dictated forex movements, I'd be a wealth man instead of a mere blogger, right?