Forex Flash: Market enters into a tactical consolidation – Societe Generale

Sebastien Galy, Senior FX Strategist at Societe Generale notes that with the end of month re-balancing flows gone, pressure on the Spanish PM, elections ahead in Italy and EUR/USD sky high, we are seeing a bout of profit taking which is hitting peripheral Europe and EUR/USD.

Galy feels that the more negative reaction of the markets to positive economic surprises is also not helping. He writes, “With USD/JPY or AUD/USD essentially untouched, the profit taking is clearly centric to Euro investors hitting EUR crosses. The up trend channels in USD/JPY and EUR/JPY are too far away to be challenged even if they will attract short term traders. Volatility is rising in peripheral bonds, but investors have accumulated enough profits for it not too trigger a rapid exit, triggering more volatility and hence more risk reduction and consequent downward pressure on peripheral financials and EUR/USD (1.3540 is the s/t support).”