BANK OF AMERICA: Here's how to trade 'escalating tensions' with North Korea

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July 14, 2017 4:19 PM

Bank of America examined how the Korean won (KRW) responded to three events in the past that were considered as "destabilizing" in the region:

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North Korea launched an intercontinental ballistic missile for the first time on July 4, showing it has the capability of reaching the United States. That prompted the United States and South Korea to hold their own ballistic missile drill.

Bank of America Merrill Lynch says there are two possible paths from here: a reduction in tensions or an escalation. The bank examined how the Korean won (KRW) responded to three events in the past that were considered as "destabilizing" in the region:

mposition and tightening of sanctions; intensified rhetoric; additional weapons testing; and military drills" without a conflict. The analysts note, however, that currency traders also have to consider the US dollar environment (and specifically interest rates adjusted for inflation). So BAML put that together with the rise or fall of tensions and created a handy little matrix:

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