Forex Response to Russian Invasion of Ukraine

Is it time to consider the Forex response to a Russian invasion of Ukraine? The Russian Federation supported rebellion in eastern Ukraine is coming to a head. Ukrainian forces are encircling the last cities held by Russian separatist forces. In response Russia is adding to its troops stationed within 30 kilometers of its border with Ukraine. As Russian troops build up on Ukraine border there is the risk of a Russian invasion of Ukraine according to Financial Times Europe.

Russia has sharply increased the number of troops and vehicles positioned on the eastern border of Ukraine in the past few days, raising fears of an invasion to stop the Ukrainian army’s recent advances against pro-Russian separatists. Moscow has around 20,000 troops deployed in battle-ready formations on the border, according to senior Nato military officers – significantly more than the 15,000 US officials said were deployed there last week.

Russian Economic Meltdown

The isolation that Russia has visited on itself with the annexation of Crimea and overt support of separatist forces in Ukraine is worsening. Proof of this is seen in tourist destinations around the world where there are Russian tourists stranded as travel agencies back home go bankrupt and have no sources of credit. According to the Wall Street Journal

Tens of thousands of Russian tourists have found themselves stranded in foreign vacation spots amid a wave of bankruptcies among Russian travel agencies, which are struggling with a weak economy and fears of international isolation because of the Ukraine crisis. The situation is the worst in years in a sector that has long been plagued by insolvencies and poor service, drawing the attention this week of Prime Minister Dmitry Medvedev. He called for regular checks of travel companies and told government officials to find ways to help the “huge number” of people stuck in “a pretty complicated situation.”

The Lonely Ruble

The ultimate Forex response to a Russian invasion of Ukraine would be a plummeting Ruble. And sanction on Russia by the west would likely lead to a recession in Russia and cause economic damage to Europe, its biggest trading partner. According to a report in online ABC News Ukraine looms like a dark specter over the otherwise advancing Euro zone recovery.

Further evidence emerged Tuesday that the economic recovery across Europe is gaining traction, though it remains vulnerable to an escalation in the crisis in Ukraine, which has seen sanctions on Russia ratcheted up.

As well as raising speculation that Russia will slip into recession following the sanctions imposed by the United States and the European Union, the crisis in Ukraine has clouded the economic outlook for Europe as a whole.

The sanctions, which were imposed because of Russia’s alleged support for Ukrainian separatists, could have an impact on European businesses that have ties with the country’s financial, military and energy sectors. Even those that don’t have direct links to those sanctioned sectors are cautioning over the outlook – German sportswear company Adidas, for example, has expressed worries over the impact on its business.

A very likely Forex response to Russian invasion of Ukraine is a falling Euro.