Key News

• Emerging-Market Short Sales Climb Most Since 2007 as Profit Outlook Dims (Bloomberg)
• European Services, Manufacturing Contract at Slowest Pace in Six Months (Bloomberg)

Key Reports (WSJ):
8:30 a.m. Initial Jobless Claims For Apr 18 Week: Expected: +33K. Previous: -53K.
10:00 a.m. DJ-BTMU Business Barometer For Apr 18: Previous: +0.7%.
10:00 a.m. Mar Existing Home Sales: Previous: -5.1%.
10:30 a.m. EIA Natural Gas Inventories

Quotable

"We have tried spending money.  We are spending more than we have ever spent before, and it does not work."

                              Henry Morganthau, Treasury Secretary under FDR

FX Trading - Second-Derivative Optimism; Plus, Euro Climbs a Wall of Worry
Last week I discussed a growing obsession with the second derivative as it pertains to economics.

I guess the easiest way to define the second derivative is to say that it's the speed at which an increase or decrease is increasing or decreasing.

You probably realize it: it's become commonplace lately to characterize GDP contraction and various data points as declining at a slower pace. For some reason, this type of characterization breeds optimism even though the future remains uncertain.

Jack highlighted an obvious example yesterday when he spoke of the most recent month of Japanese exports plunging less dramatically than the previous month. And then I came across this guiding light today:

"Europe's manufacturing and service industries contracted at the slowest pace in six months in April, signaling the worst of the recession may be over."

And before you think it's time to go out and start buying euro because Europe has found a bottom, consider a few things:

First, a fitting comic sent to us from a friend and colleague ...

Second, consider a less peppy forecast on Europe's economy ...

"Europe's economy faces a deeper recession and a slower recovery than the U.S. or other parts of the world, making it the region that is most hurting prospects for an early end to the global economic slump."

That from this Wall Street Journal article: Europe's Grim Outlook Challenges World Recovery. All the sour data points packed into this article likely explain why the euro has underperformed in the last several weeks.

Third, note this bit of information as I included yesterday in the Currency Strategist ...

'And this morning EU government debt to GDP ticked higher to 69.3%. (Note: a maximum of 60% represents the limit on EU member nations.) Similarly, deficits in a handful of EU member nations have now breached the 3% limit outlined in the Maastricht treaty. These deficits are expected to continue higher to 4% and 4.4% in 2009 and 2010 respectively.'

After a strong rally yesterday and a continuation so far this morning, the euro appears to be climbing a wall of worry. With all the data pointing down, we struggle to watch the euro float higher.

Now don't get me wrong - I'm not trying to tell the market what should be happening; I accept that price action is the ultimate indicator.

Stocks tanked to finish off the day on Wednesday. The euro remains bid despite the relatively tight risk-appetite correlation it's maintained with stocks. Perhaps the euro is just balancing out some of its decline over the last month. Perhaps it's found Fibonacci support.  And perhaps it's a lot of open options near the 130-level that are soon to expire, according to a news tidbit from Reuters this morning.

Whatever the case, the future doesn't look bright ... no matter how fast we're told the rate of decline is slowing! Got that?