Russian And Ukraine Tensions: What They Mean For The EUR/USD

March 4, 2014 2:18 pm 4 comments

The EUR/USD currency pair is likely to come under some pressure this week as the Ukraine prepares for an invasion by Russia and investors make a move toward currencies that are more liquid, such as the Swiss franc. The euro traded at $1.3787 early Monday as attention shifted to the rapidly escalating problem in Ukraine.

On Sunday night Russian President Putin expressed his right to safeguard Russian citizens within Ukraine and Russian by use of military force, which Ukrainian leaders have translated into an actual declaration of war. The decision delivered a strong message, particularly to the West, which had earlier advised Putin not to get involved.

Kiev has started to mobilize troops. Even so, the Ukrainian military is quite small compared to Russian troops which are more substantial and much better equipped. The Ukrainian Defense Ministry put out a call for reserves, including all men ages 40 or below throughout the country, but even if they add in extra manpower the nation is still going to lack the necessary guns and resources to supply them with.

Putin’s decision to engage Ukraine has infuriated United States officials, who are now asking for shale support economic sanctions to be placed on Russia. The euro is quite likely to feel some pressure as the problems continue since the United States by itself is not going to able to make any impact in the Russian economy. If any impact were to be made, American sanctions would have to be accompanied by those of key eurozone nations, which are reliant upon Russia for fuel.

Meanwhile, a number of Western leaders including U.S. President Barack Obama have canceled visits to Sochi for the upcoming G8 summit. Ambassadors have been ordered not to attend the Paralympics. The State Department announced Monday the U.S. is close to imposing financial or political penalties against Russia. The European Council has scheduled a special meeting this coming Thursday in reaction to increased Ukrainian tensions.

The USD moved higher against several major rivals Monday following the release of some positive U.S. data, but continued to be at a month-long low versus the yen as Ukraine and Russia tensions continue. The ICE dollar index increased to 80.0810, up from 79.753 Friday. The index dropped a total of 1.8% for February. The dollar dropped to ¥101.39, down from ¥101.85 Friday, it’s lowest in a month. Both U.S. and European stocks are down while Treasurys and gold futures gained.

The euro had dropped to $1.3732 late Friday, coming down from its highest level of 2014. A portion of the euro’s most recent decline could be coming from the fact that a large portion of Europe’s natural gas coming from Russia passes through Ukraine. This could obviously present a problem that would continue to impact the value of the euro in the coming days and weeks.

The dollar rose about 1.5%, up to 36.5085 rubles late Friday. Meanwhile, Russia’s central bank increased its policy interest rate. The new higher rate is 7%, up from 5.5% The dollar increased in opposition to a number of emerging-market currencies Monday, such as the lira, rand, peso and rupee, providing binary options traders with many different trade combinations to take into consideration.

Going forward traders should be closely watching the Ukraine for the latest developments. The Forex market is likely to remain volatile until problems are resolved. Ukrainian officials have announced that they plan to ask the United Nations for support should Russia push forward with additional military intervention, so stay tuned.

Richard Marks is the founder of http://www.binaryoptionsu.com. He has been a trader of the financial markets for over 10 years and continues to bring fresh ideas to traders from around the world.

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