- EUR/USD rallies as risk lifts heading into the close on Wall Street with stocks turning less negative.
- US president Joe Biden's speech and announcements of sanctions are not enough to tip risk over the edge of the abyss.
- Bull flag pattern on the hourly chart is starting to shape up for a breakout to the upside. Eyes on 1.1350's.
EUR/USD was recovering following US president Joe Biden's speech where despite his warnings that Russia is setting up to invade deeper into Ukraine, this is still speculation. The sanctions imposed on Russia are not seen to be disruptive to the global economy and for that reason, risk has rallied in financial markets. So far, there has been no further escalation of the crisis and no evidence that Russia is encroaching on Ukraine outside of the current borders. EUR/USD has subsequently corrected back towards 1.1340 and stays on the green by some 0.30% towards the closing hour on Wall Street.
US Biden announced sanctions
US president Biden announced the first tranche of sanctions on Russia by implementing sanctions on Russian sovereign debt. The US will be working with Germany to halt the Nord stream 2 while also issuing full blocking sanctions on two Russian banks. Additionally, the US will be imposing sanctions on Russian elites and family members.
This is another whipsaw for traders in forex due to the developments in Ukraine a day after Russian President Vladimir Putin recognized two breakaway regions in the country and ordered troops to the area. Putin said the troops would be "peacekeeping" in the breakaway regions - a claim dismissed by the United States as "nonsense".
However, so long as Russia does not invade deeper, there could still be room for diplomacy and the markets are of the mind that there can be a resolve to this crisis. Biden also said he was hopeful diplomacy is still available. The Dow and Nasdaq were down more the 2% shortly before the comments from Biden but have since recovered some ground lost on the day. Currently, the Dow Jones is now down by just 0.9% and the S&P 500 0.4%.
As far as diplomacy, the White House said on Sunday a summit between the US and Russia will go ahead only "if an invasion hasn't happened." This means that the meeting between Secretary of State Antony Blinken and Russian Foreign Minister Sergey Lavrov in Europe this week will be a critical stepping stone in this direction.
However, this meeting will also depend on the condition that Moscow's troops don't further encroach into Ukraine between now and then. Earlier on Tuesday, NATO Secretary-General Jens Stoltenberg said that the alliance believed Russia was still planning a big assault on Ukraine following Moscow's recognition of two separatist regions in the former Soviet republic's east.
The Guardian reported earlier, ''Putin confirmed that Russia had recognised the expanded borders of the two Russian-controlled territories in east Ukraine in remarks to the press.
'We recognised the states,' he said.
That means we recognised all of their fundamental documents, including the constitution, where it is written that their [borders] are the territories at the time the two regions were part of Ukraine.
His dry explanation has explosive consequences: Russia could use the territorial claims as a cause to launch an invasion of more Ukrainian territory, saying it was defending the interests of its proxy states in Donetsk and Luhansk.
Putin stopped short of saying that he was about to launch a further invasion.
But we expect, and I want to underline this, that all the difficult questions will be solved during negotiations between the current Kyiv government and the leadership of this government.
But Kyiv has always resisted negotiating directly with the governments of the Russian-controlled territories, saying it wants to speak with Moscow directly.
Having recognised the territories and received authorisation to use military force abroad on Tuesday evening, it has become clear that Russia is building the framework for what could be a broader conflict in Ukraine.''
EUR/USD technical analysis
The bull flag pattern on the hourly chart is starting to shape up for a breakout to the upside. On the 15-min chart below, the bulls could be looking to engage at this juncture in the 1.1330s with eyes on the 1.1350s for the sessions ahead:
EUR/USD M15 chart
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