Euro-easy day

Econ data from the US out today:

1) new home sales poorer than expected as foreclosures keeps supply of homes elevated and prices suppressed, making resale homes more attractive

2) durable goods orders better than expected, turning in a positive number vs a negative one expected - lending hope that the economy will see better capital investments and business spending going forward as the economic decline continues to ease

Stocks initially fell on the release of the first piece of news but recovered to trade about 1% in the positive territory after the release of the second.

I guess the stock market needed a reason to be bought and so 2) was the boost.

In FX however, we have seen some choppiness with the movement of the majors. EURUSD traded higher earlier in the day, touching a high of 1.4139 before retreating back into the 1.40 handle as the ECB manages to lend out a higher than expected amount of funds - to the tune of just Eur 442 bn for one year at the rate of 1%.

This program is unprecendented and is aimed at flooding the banking system with cash so as to improve liquidity and encourage lending. The last time the ECB did this was in Dec 08, the midst of the crisis. Note that the cenbank also said they would not lend at such good terms again.

And the response by the financial sector was better than expected. Eur 300 bn was the initial estimate for the take up. As a bank, I'd say, why not? Its cheap money and I might as well borrow whatever I can first, then think of ways to make a return on it.

However, even as the system is flooded with supply of Euros, it does not mean that the value of the Eur will necessarily fall, as banks are still reluctant to lend to businesses. M3 money supply growth is in fact still decelerating.

Yes forward looking data in the EZ are good, but we will monitor the hard economic data when they are out in the coming weeks, as well as private sector lending to see how much more Euros got into the system.

In Dec when the ECB launched this program, the Eur didn't suffer, and there's no reason for it to now either!

I'd be looking to buy EURUSD on dips as a medium term strategy, playing with the economic growth story and the fed's easy monetary policy.