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Friday, 18 September 09:26 (GMT -05:00)

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Sanctions Against Russia and Consequences For Ruble, Dollar and Euro


The EU promises to impose tough sanctions on Russia, thereby following into the USA's steps. The leaders claim Russia will have to pay for annexing the Crimea, which used to be a part of Ukraine. These sanctions are promised to be divided into several packages and rounds to introduce them gradually. The ultimate goal seems to be a complete breakup of all the economic and political relations with Russia.
Market Leader and Masterforex-V Academy tried to figure out the possible consequences of these sanctions for the involved economies and their national currencies.




Sanctions: Good or Evil?
While the decision to impose sanctions on Russia is already made, the West is still considering the quality and quantity of those sanctions. One thing is sure: all those sanctions will be imposed so as not to hurt their own economies. As e know, sanctions in today's external policy is a double-edged sword and therefore they should be treated carefully. At the same time, Russia threatens to respond immediately to those sanctions.
At this point, we know that the likely package of sanctions against Russia will probably include:
-       Excluding the country form G8. Still, there is G20. Still, there is nothing special about those G-clubs. These are conventional at most. The Crimea is certainly worth losing the G8 membership.
-       Freezing Russian assets abroad and rejecting visas for certain Russian officials. The first list of those officials are already revealed.
-       Suspending military contracts and abandoning military exercises. Well, Russia has nothing to lose in this aspect, unlike Europe. For example, France could have got $1,3bn from Russia for two Mistral ships. Could have got…
-       Financial sanctions, which are expected to hinder business financing. Indeed, experts say that the flight of capital from Russia may reach $100bn this year. At the same time, Russian companies managed to withdraw billions of dollars from Western banks before the relations crisis started.
-       External trade sanctions restricting trade relations with Russia. The EU accounts for 54% and 42% of Russia's export and import respectively. Apparently, such sanctions may lead to deficits of many products made in the EU. Still, Russia is not dependent on the import of arms, fuels and grains, unlike the EU. Still, these sanctions may well stimulate the development of related domestic industries.
-       Investment sanctions. A couple of days ago, the Press Secretary of the White House urged Western investors to abandon from investing in Russian stocks and bonds (they say the Russian Ruble is losing value and the Russian economy is weakening).
Despite the fact that some of those sanctions are minor, further toughening may eventually result on major consequences for the Russian economies.
Still, not all Western experts are reassured by those sanctions and believe that they will have serious effect. For example, some analysts working for Morgan Stanley assume that Russia has no reasons to fear those sanctions. Firstly, this is the first time the sanctions are imposed on such a big economy (2,8% of the global GDP, 4,7% of the global trade and 13% of the global oil export).
Secondly, Russia's external trade is diversified. It doesn't depend entirely on the West and therefore has a lot of space to maneuver.
Thirdly, crude oil is the biggest part of the Russian export. This commodity is the blood of the global economy and therefore is in high demand. On top of that, Russia is to sign another natural-gas agreement with China, which is to solve some of tis export problems. Gazprom is planning to built a LNG facility in Vladivostok in order to reach Japan and North Korea. At the same time, the EU is yet to decided how to diversify its energy import despite all those promises made by the USA to supply Europe with oil and gas. The USA won't be able to supply Europe with enough energy carriers to cover 100% of their needs in the near future since there is no required infrastructure.
On top of that, Russia has a pretty thick safety cushion to survive the period of all those sanctions. The thing is that Russia has already accumulated abundant gold-and-currency reserves. At the same time, the country's external debt is relatively low while crude oil prices are high despite all the efforts made by the USA to drop them in order to undermine the Russian economy. Low unemployment and some other economic figures also testify to Russia’s ability to withstand the economic assault of the West.
And finally, the Kremlin can respond to the Western sanctions. It can find other economic and trade partners around the globe. We should keep in mind that Russia is a Eurasian country. Some Western companies can suffer form a Russian response, including Boeing (it entirely depends on Russian titan) or Exon Mobil.
In short, some experts, including those working for Forbes, assume that the Western sanctions will mainly affect Russian stock indices and the Russian Ruble. Still, the effect may well be temporary and short-term one.
At the same time, Masterforex-V Academy analyzed the H1 chart of EURUSD to define the mid-term prospects of the currency pair.
The experts report that the long-term bias is still bullish. However, the price is currently retracing within the scope of a mid-term downtrend. The currency pair is consolidating within the scope of the 1,3846 - 1,3748 price range. The currency pair is currently trying to decide on the direction of the future price move.
If EURUSD continues its way down, the price is very likely to decline down to 1,3748 and to go further down if it manages to consolidate below the mentioned level of support.
Alternatively, if the price resumes the rally, it may well touch 1,3846. If it manages to consolidate above the level, the next target is 1,3941.




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