Awaiting West’s Response to Crimea's Yes

Crimea's vote to join Russia was largely anticipated but the response from the US and Europe is a wildcard. Initial moves to start the week have been minor. Last week, the yen was the top performer while the pound lagged. Weekly positioning data showed why yen traders got squeezed last week.

Results of the referendum showed the people of Crimea voted 95% in favor of joining Russia but the Ukraine and West won't regard the results. The next move belongs to Russia, who will probably begin the process of annexing the region. Last week the US promised sanctions against Russia on Monday if the referendum went ahead. Following up that pledge will be the key in the day ahead.

Early rumblings suggest the sanctions won't be severe and could target the wealth of Russian oligarchs in offshore enclaves. Russia may accept something along those lines as the cost of doing business or could launch countering sanctions. In that case, the market will be frightened of an escalation and JPY will continue to rally. 

Alternatively, there may be a path for tensions to subside. Russia's foreign minister on Friday said there are no plans to invade Eastern Ukraine and on Sunday defense ministers from Russia and Ukraine agreed to a truce in Crimea until March 21.

The other noteworthy piece of weekend news was a decision by China to widen the daily yuan trading band to +/- 2% of the reference rate. Alone, this shouldn't have an impact on the market but don't rule out a USD move.

Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +

EUR +36K vs +23K prior JPY -99K vs -79K prior GBP +22K vs +30K prior AUD -40K vs -41K prior CAD -52K vs -61K prior CHF +9K vs +2K prior NZD +14K vs +13K prior

A sizable shift in yen shorts came at a bad time as those traders quickly fell underwater and probably helped exaggerate the move down in yen crosses late in the week.