"Euro Under Pressure Amidst Eastern European Banking Risks, Signs of Distress

Tuesday, 17 February 2009

Written by Terri Belkas, Currency Strategist

The EUR/USD pair broke below key support at 1.2700 on Tuesday morning, suggesting the
pair could target the 2008 lows of 1.2329 as signs of distress in the Euro-zone
continue to emerge.
First, Moody's rating agency warned that the eastern European banking system was
increasingly vulnerable to a "steep and long economic downturn," and that western
European banks with locations in eastern Europe may face ratings downgrades.
According to a report in the Financial Times, "Euro-zone banks have the largest
exposure to central and eastern Europe, with liabilities of $1,500 billion," which
works out to be "about 90 percent of total foreign bank exposure to the region."
Next, German Finance Minister Peer Steinbrueck said on Monday evening that European
countries may have financially assist EU member nations, but with no firm structure
in place, it may prove to be an arduous task to construct a feasible bailout plan.
Indeed, there are concerns that European banks have yet to announce massive
writedowns, which leaves systemic risks lingering for the world's financial markets.
Until everything is out in the open and toxic assets are removed from the books for
financial institutions, risk aversion is likely to remain a persistent issue."