EU banks’ Turkey exposure in spotlight

There is little sign that the euro is about to turn around its rough patch against the dollar as concerns over the exposure of the region’s banks to Turkey ratchet up and bund yields slide back toward the lower end of their recent range.

The common currency broke below support at $1.1500 Friday to touch its lowest point since July last year following a report that the European Central Bank sees UniCredit SpA as particularly vulnerable to Turkey’s market woes. While there isn’t a large build-up of long positions to be squeezed out, a change in fortunes may be unlikely until bund yields begin to rise more meaningfully, according to Societe Generale SA.

“ECB concerns grow over EU banks’ Turkey exposure has provided the catalyst for EUR/USD to fall out of the bottom of its three-month 1.15001.1850 range,” strategist Kit Juckes wrote in a note to clients. “We would still rather own NOK and SEK than EUR, or GBP.”

The euro has the potential to drop further if there is more evidence of spillover from the rout in the lira to the euro-area banking sector. Credit Agricole SA strategist Valentin Marinov sees a break of $1.14 potentially “opening the way” to a test of $1.1360-$1.1370. Traders face euro-area secondquarter gross domestic product data today, as well as industrial production data for June, while Germany’s ZEW survey is published the same day.