The euro has dropped sharply in the last 36 hours after new data showed risky debt held by European banks could be a bigger problem than was previously indicated.

The stress test of European banks performed by the European Union in July found that lenders would holding plenty of risky debt. The report indicated that German’s top 10 banks were $135 million below new capital requirements based on their debt situations.

One euro fetches just $1.2697 in early Wednesday (September 8) morning New York currency trade. Late Monday night, the euro trade around $1.29 before it began a sharp decline.

Along with the renewed concerns about debt problems among EU member nations, the Euro-USD currency pair met significant short term technical resistance just above the $1.29 level.

Short-term technical charts show the Euro in a bearish trading pattern against the dollar, with short-term support coming in just above $1.25. Just as this mark served as long-term support a few months ago, it now serves as short-term support if the euro is going to continue its medium term upward trend from the mid-June bounce off of $1.1876.

Oil futures were down in early New York Mercantile Exchange trade as well. After a $74.09 settle price Tuesday, benchmark crude oil scheduled for October delivery was trading at $73.93 early Wednesday.

Despite noting downside risk due to lower demand for crude oil, the Bank of America recently forecasted a high price of $78 per barrel for the remainder of 2010. It also indicated a high price forecast of $85 for 2011, which is below the $87 mark achieved earlier this year.

High crude inventory levels and weak consumer and business demand for oil-based products have capped oil prices of late. A resurgent dollar in the coming weeks could spell more trouble for crude oil prices.

The American Petroleum Institute and Energy Information Administration release their reports on crude inventories late Wednesday and Thursday, respectively, due to the Labor Day holiday. The Platts (energy information branch of McGraw-Hill Companies) survey forecasts a 730,000 barrel drop in crude oil inventories.