Are Chartreuse Shoots Bullish For The Euro?

Risk is back and no longer a four letter word, we shall now call it risqué. In fact, those still wearing a turtleneck are terribly out of date since today’s fashionable trader has begun to wear the two piece bathing suit once again. It did not take much to convince investors that green shoots have indeed sprouted and bathing suit weather is just around the corner.

Pending Home Sales

For the second month in a row pending home sales jumped and looking deeper into the numbers rewards us with the insight that the so called epicenters of the housing crisis are actually seeing a rebound. Pending home sales in the south were up 8.5% vs. February 2009 and 7.7% vs. March 2008. Moreover, pending sales in the west were up 3.9% for the month and 1.7% vs. March 2008. Green shoots indeed!

We certainly can parse the data and come up with some reason to stay fully clothed, but frankly the market sentiment is so strongly bullish that it would foolish to be the only traders on the street wearing a turtleneck.

European Green Shoots

The European palate is a bit more refined and thus they tend to prefer their shoots chartreuse. In light of their more subtle preferences, the data was mixed out of Europe; both the Swiss and the Euro-zone PMI were a positive surprise while German retail sales fell.

The most important event of the week on the European calendar is the ECB meeting Thursday. The market is trying to determine if the ECB will cut rates and enact quantitative easing. The most bullish scenario for the Euro would be a small rate cut, an announcement of QE but no action. This would set the tone that the ECB is prepared to act, but is using prudence. The mixed data gives Jean Claude Trichet and the ECB an excuse to do exactly that.

This scenario received a boost with the release of Euro-zone PPI and German new car registrations. The Euro-zone PPI dropped 3.1% yoy, the largest drop in over 20 years. The ECB is one of the only central banks to specifically target an inflation figure. The drop in PPI certainly gives a reason to cut interest rates and at the very least have some QE dry powder.