While markets are closed during the weekend, the movements in Eastern Ukraine and words from both sides point to an escalation in the conflict.
Europe has a lot to lose from worsening ties with Russia, while the safe haven Swiss franc and Japanese yen are the natural winners when worries take a grip.
Ukraine Deterioration
- Russia continues to deny involvement, but it swapped troops with Ukraine and there are reports of secret funerals of Russian soldiers.
- In its summit, the European Union hosted the Ukrainian president Petro Poroshenko and pledged to accelerate talks on sanctions. It now mounts to an ultimatum for Russia.
- Various Eastern European leaders raised the rhetoric against Russia, including a statement from Lithuania’s president that “Russia is at war with Ukraine and thus effectively at war with Europe“. So far, the US, the UK, Germany and France have refrained from calling the Russian involvement an “invasion†but rather an “incursionâ€.
- Russian president Vladimir Putin wants “urgent talks†on a “statehood†for East Ukraine. Earlier ha said that I think that the Russian and Ukrainian peoples are practically one single people.
EUR/USD free fall
There was some end of month madness in markets: the dollar was sold off towards the end of the month, as some took profit on previous gains. However, in the last hours before the close, late in the New York session, the previous trends of August intensified:
EUR/USD fell to a new low at 1.3131, EUR/CHF dropped deeper and the dollar gained against other currencies.
Last week we saw a weekend gap for the euro after Draghi’s Jackson Hole speech, in which he acknowledged that lower prices were not temporary trends and where he further opened the door to more stimulus.
Can we expect another gap now? Will the SNB come under pressure with the floor of 1.20 under EUR/CHF? This week will mark the third anniversary for the floor.
For more, see the EURUSD forecast.
