The Escalation of the Ukrainian Crisis Makes the Euro Collapse, Safe Haven Stands Out

The euro fell again below the 1.1300 threshold versus the US dollar in today's trading, also battered versus the Japanese yen and Swiss franc.

The euro fell again below the threshold of 1.1300 versus the US dollar in trading today (22/February) following the escalation of the Ukraine crisis. The Single Currency is also battered against the Japanese yen and Swiss franc. EUR/JPY and EUR/CHF have now slumped to three-week and four-week record lows, respectively.

EUR/USD Daily chart via TradingView

Russian President Vladimir Putin yesterday announced the recognition of the independence of the Donetsk and Luhansk People's Republics, two regions in the Donbass area that broke away from Ukraine. He also ordered the deployment of "peacekeeping" troops to the two areas. Despite this, Washington last week warned Moscow that recognizing the independence of the two Ukrainian separatist regions would be seen as a violation of Ukrainian sovereignty and international law.

A senior US official said Russia's move so far did not amount to a "further invasion" that could trigger the harshest sanctions, but countermeasures could be announced at any time. Britain, France and Germany also agreed to impose sanctions on Russia's recognition of the independence of Donetsk and Luhansk.

The ruble and euro collapsed due to the escalation of the Ukrainian crisis. Conversely, safe haven assets are gaining renewed buying interest. The slump so far has been confined to the currencies of the regions involved, as markets continue to monitor the situation. Other high risk assets still have sufficient support. At the time of writing, AUD/USD continues to consolidate around 0.7195 and NZD/USD is holding its one-month high.

"Russia hasn't invaded... (but) we still need to monitor developments in this crisis," said Qi Gao, a strategist at Scotiabank.
“The sharp sell-off in Russian assets is a clear reminder that tensions remain very high and risk sentiment is taking a hit across bond, credit and equity markets,” Westpac analysts wrote in a note cited by Reuters, “However, the commodity story remains very supportive and we are in the middle of a miners dividend sharing season, so we may be ready for a more limited price move around 0.72.”

The next market will focus on the schedule for a meeting between US Secretary of State Antony Blinken and Russian Foreign Minister Sergei Lavrov on Thursday, provided a head-on clash does not occur by the time the summit is held. The follow-up stance announcement from the White House could also influence market sentiment going forward.