EUR/JPY slumps under 130.00 as Russia escalates tensions with Ukraine/NATO, West prepares sanctions

• EUR/JPY slumped under 130.00 for the first time since February 3 on Monday as Russia escalated tensions with Ukraine & NATO.
• Russia announced its decision to recognise the independence of breakaway regions of eastern Ukraine and NATO nations are preparing sanctions.
• Geopolitical hostilities and the rising risk of a broader Ukraine/Russia conflict suggests EUR/JPY’s risks are tilted lower.

EUR/JPY slumped below support at the key psychological 130.00 area for the first time since February 3 on Monday, as the euro suffered from further escalation in the Russia/Ukraine crisis. The pair is now trading in the 129.75 area, down about 0.3% on the day and a more than 0.8% turnaround from earlier session highs nearer to 131.00. Russian President Vladimir Putin confirmed that Russia would be recognising the independence of the Donetsk and Luhansk People’s Republics in Donbas, two pro-Russia breakaway regions of Eastern Ukraine over which a bitter civil war was fought back in 2014/15.

Market participants interpreted Russia’s decision to recognise the breakaway regions as independent substantially increasing the risk of a broader military confrontation between the Russian and Ukrainian armies. The fear is that Russia will step in to back the separatist region as hostilities with Ukraine’s army ratchet up. Various EU and NATO nations are now understood to be preparing a preliminary round of sanctions against Russia, with Western nations claiming Russia’s declaration goes against international law. Given its dependence on Russian energy imports, the Eurozone economy is seen as vulnerable to any Russian counter-sanctions.

For this reason, over the course of the coming days and especially now since key support at the 130.00 level has been broken, EUR/JPY’s risks seem tilted to the downside. Traders will once again be looking at a long-term uptrend linking the November 2020, December 2021 and January 2022 lows which will offer support just under 129.00. In the meantime, the most immediate area of support is in the 129.50 area. A lack of notable tier one data releases out of the Eurozone or Japan should mean that geopolitics and broader risk appetite remains the major driver of the pair.