Will the Ukraine situation finally boil over?

Our weekly “Emerging Market Rundown” report is always released on Monday's around this time, but lately the report been more of a weekly “Russia/Ukraine Tensions Rundown.” Once again, the embattled eastern European country is front page news for EM currency traders.

Many hoped that last week’s so-called "Geneva accord," where Russia explicitly called for the militants in Eastern Ukraine to step down, would be the end of the unrest. Unfortunately, those hopes appear to have been premature after a deadly shootout near Slovyansk earlier today, along with photographic evidence that the pro-Russian “militants” are actually Russian soldiers.

Meanwhile, Russia is accusing Ukraine of violating the Geneva accord by failing to disarm the uprising. At this point, the relationship between Russia and Western powers is as frayed as ever, with U.S. Vice President Biden taking an emergency 2-day trip to Ukraine to meet with interim Ukrainian leaders ahead of the next month’s critical elections.

Thus far, EM traders have taken this weekend’s developments in stride, with volatility in emerging markets relatively subdued after a long holiday weekend. Eastern European currencies, including the Hungarian Forint, Polish Zloty, and Turkish Lira, are ticking a bit lower against the U.S. Dollar today, but remain well within last week’s ranges.

As you might expect, one of the largest reactions thus far has been in the Russian ruble, which has ticked back toward the upper-35.00s after nearing the 1-month low around 35.00 late last week. Looking at the broader technical picture, it appears that traders are not anticipating an imminent escalation of violence in Ukraine. 

The USD/RUB is trading directly in the middle of April’s range, and the MACD is flatlining near the “0” level, showing no meaningful momentum in either direction. At the same time, the RSI is actually in a downtrend, showing that buying pressure continues to wane after the pair hit all-time highs last month.

As long the USD/RUB remains trapped below 36.00 and the RSI is in a downtrend, EM traders will remain sanguine about the ongoing situation in Ukraine. However, if we see violence escalate heading into next month’s elections, the USD/RUB could breakout, and more importantly, that weakness could spread to other vulnerable emerging market currencies in a contagion-style situation, like we saw earlier this year.

About the Author
Matt Weller

Senior Technical Analyst for FOREX.com. Matt has actively traded various financial instruments including stocks, options, and forex since 2005. Each day, Matt creates research reports focusing on technical analysis of the forex, equity, and commodity markets. In his research, he utilizes candlestick patterns, classic technical indicators, and Fibonacci analysis to predict market moves. Matt is a Chartered Market Technician (CMT) and a member of the Market Technicians Association. You can reach Matt directly via e-mail (mweller@gaincapital.com) or on twitter (@MWellerFX).

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