Could further Russian sanctions lead to outflows into the Euro?

The spectre of the MH17 tragedy still hovers over the worlds minds, and while there is still no one to be directly blamed for it, nobody has taken responsibility for the tragedy yet.

In the meantime, the main leaders of the world’s most developed countries continue to press for further sanctions against Russia, as a direct response of Russia’s continued attempts to destabilise mainly Eastern Ukraine and arm the separatist militia in the region. However, while some countries would like to hit Russia’s main resources, others remain sceptical due to their dependence on Russian gas for example. So, as Russia seems to be casted away by some and deem solely responsible for the recent terrorist act, the progress of further and stricter sanctions could not only find dissent voices but also fade away as the days pass by without any further light being shed into the situation.

As a direct consequence of recent US/EU sanctions, the Russian stock market logically plummeted as widely expected, along with a depreciation of the domestic currency, the ruble (RUB). In light of the uncertainty reigning in the region and the potentiality of further sanctions, outflows from the Russian market seems to be the most likely outcome… but where are these funds heading? One destination could certainly be the euro area, thus favouring the EUR and exacerbating its current resilience around the 1.3500 area, despite the (not yet extreme) speculative short positioning and softer data, as per the recent economic data releases.

The almost non-existent volatility and the sensation of incredulity from the markets play against a logical increment of the risk aversion, leaving the door open for even a rebound, although this being a tepid one.