Be Careful to Possible Black Swan in Russia

Russia's opposition leader Alexei Navalny was immediately taken into custody on his return, which sparked widespread protests in Russia. It was reported that around 90 rallies took place in over 60 cities across the country, demanding the release of Navalny. More than 3,000 protesters and journalists were arrested by police who clashed with them. Under Putin's rule, rare protests gain such momentum before.

I started trading forex in late 1987. Later in November 1989, the market was thrown into turmoil because of the fall of the Berlin Wall and the collapse of communism across Eastern Europe and the Soviet Union. The changes in the geopolitical situation in Europe brought about dramatic fluctuations in the Deutsche Mark. Those days were even more turbulent than what is described in Gone With the Wind. In September 1992, Soros took the opportunity to build a massive short position against the sterling. European currencies in the three years did see earthshaking shifts.

Both Soviet Union and Russia play a key role in financial markets. For instance, the euro dropped in excess of 1,000 pips in August 2008 when the Russo-Georgian War broke out. The euro in 2014 declined over 3,000 pips on hearing the Russo-Ukrainian War. At the time, the EU and the US both imposed sanctions on Russia, one of the largest producers of oil, contributing to a plunge of $66 in oil prices.

A single spark can start a prairie fire, let alone an anti-government protest on such a large scale that never occurred before. If the potential of social tension accumulated, chances are Europe's financial markets have to brace for a rocky period. Another hit to Russia comes from the new US administration led by Democrat Biden. The Democratic party had been accusing of Russian interference in the 2016 election. They believed it harmed Hillary Clinton's chances of success and finally revealed Trump's Russia ties. Clearly, Republicans and Democrats move in opposite directions on Russia views. Thus Biden is expected to be tougher against Russia than Obama. His antipathy to Russia was evident during the first televised debate - he slammed Trump as Putin's puppy.

The euro may be negatively affected in the chaotic situation. Biden as well as the EU may make excuses to impose stringent sanctions on Russia if Navalny is not released from detention. Whats more, if Biden and Yellen tax more on the rich and raise the minimum wage, the US dollar may weigh on the euro after receiving a boon from the new policies. With that said, it comes a critical point for EUR/USD. Whether the pair will peak is determined by the above factors. Thus traders need to pay close attention to the changes in them.