Euro Strength Limited by Market Expectations: Scotiabank

Scotiabank strategists Shaun Osborne and Eric Theoret note that the Euro is quietly consolidating in the mid to upper 1.16s after stronger German IFO and Gross Domestic Product (GDP) data.

The data, released August 26, should bolster European Central Bank (ECB) confidence ahead of its September 10 meeting.

Markets have nearly fully priced a 25 bp hike and further tightening, but there's little room for additional near-term Euro strength as spot trades slightly above Scotiabank's fair value estimate of 1.1622.

Despite the recent recovery in yield spreads providing fundamental support to the EUR, Osborne and Theoret see little scope for additional near-term gains.