- Don’t be Fooled by the Pullback in the Dollar Because…. - November 14, 2018
- Rise of the USD – How high can it go with - November 14, 2018
- VIDEO – Targets for GBP, USDJPY and EURO - October 5, 2016
- RBA Meeting Preview - October 3, 2016
- How to Trade the Dollar into the Presidential Debate - September 26, 2016
- Here’s How to Trade the Sept ECB Rate Decision - September 7, 2016
- Bank of Canada September Preview - September 6, 2016
- Will August Payrolls Disappoint the Dollar? - September 1, 2016
- Where is the Dollar Headed this Week? - August 29, 2016
- Will Aug NFPs Help or Hurt USD/JPY? - August 4, 2016
The big story in the currency market today is the Euro which hit a 2 month low against the US dollar. Ratings agency Moody’s warned that the exposure of Western European banks to Eastern European loans could affect their credit ratings. Up until the global credit crisis, Eastern European nations were growing at very rapid rates. This enticed many Western European banks to lend as much as $1.7 trillion to those nations. According to Morgan Stanley’s Stephen Jen, $400bn of that debt is expected to be rolled over this year – about a third of the region’s GDP.
On top of that, many companies in Eastern Europe were sold foreign exchange contracts to protect them against appreciation in their currency. Poland’s Polsi Koncern Meisny Duda SA (a meatpacker) reported that their currency derivatives contracts have floating losses of 29.3 million Zloty ($7.8 million). They wanted to hedge against a higher currency but instead, the zloty plunged 33 percent. Similar problems are expected for other Eastern European corporations. This could be a domino effect that hits the region as a whole.
Within the Eurozone, there is still fear that Ireland could default on their debt as credit default swaps hit record highs. A default in Ireland will add tremendous pressure on the Euro.
All of these problems brewing in Europe will mean more losses for European banks. This could force the European Central Bank to take more aggressive action on a monetary basis and drive the EUR/USD down to its 2 year low of 1.2330.