German investor optimism skyrocketed to a 17 month high helping to propel the euro to...

... 1.2250 in early morning European trade. The ZEW survey recorded a rise to 50 from 39 projected as investors shrugged off record high oil prices and focused instead on the improving export market spurred by a decline of 10% in the euro since the beginning of the year. The hope amongst investors is that renewed export growth will eventually lead to higher employment and greater consumer spending in the Euro-zone both of which have been moribund for the past 3 years. Earlier in the night the German GDP figures reported inline results registering a 1.5% y/y gain on a not seasonally adjusted basis. In a sign that the German consumers may be finally ready to pry open their wallets Domestic Demand increased by better than expected 0.3%. The data was another piece of welcome news to euro bulls who have now watched the unit rally by more than 100 points since Friday.

In the US today Existing Home Sales is the only release of note. While an army of pundits (including yours truly) have been spectacularly wrong about the burst of the housing bubble, the latest anecdotal evidence should at least offer some food for thought for unrepentant housing bulls. Over the week-end the blogosphere was abuzz over the Sacramento Bee story on Jim Eggleston, the town’s premier installer of home “For Sale” signs. Apparently business is booming with Mr. Eggleston having to buy an additional truck and hire more employees. If this story is an early indication of an inventory build up the unwind of the bubble could become brutal in a heartbeat. As Merrill Lynch recently warned, the last time we had such wide gap between the rise in house prices vs. the rise in incomes was in 1989 when bids evaporated and prices slid 20% in a year. Needless to say should this scenario play out the same way now, the consequences for the dollar would be severe.


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