The Euro (EUR) is trading defensively and drifting back below 1.16 as it fades a portion of Wednesday’s gains, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

Markets await PMI’s

"Fundamental releases have been limited as we await Friday’s preliminary PMI’s. Interest rate differentials remain steady and supportive of EUR strength however their relationship to the EUR remains weak at the moment."

"Sentiment continues to dominate and we note a persistently high correlation to risk reversals, reflecting the market’s focus on recent political developments in France. The French political situation appears to have settled and the French-German 10Y yield spread has steadied just below 80bpts at the narrower end of the range following its blowout in late August."

"The EUR remains range bound. Momentum is close to neutral with an RSI just below 50 and the broader trend offers little as the flattened 50 day MA (1.1688) reflects the trendless range observed since early July. Recent movement has been bound between last week’s low around 1.1550 and last Friday’s high in the mid/lower-1.17s. We look to a near-term range bound between 1.1550 and 1.1650."