NY Session: USD mixed, EUR stable as Slovakia approves EFSF

The greenback was mixed against the majors with the Dollar Index continuing to hold above the 50% retracement of the rally from Aug. lows to Oct. highs. The risk rally appeared to be losing steam as growth concerns came back into focus following a shrinking Chinese trade surplus which was released overnight. European bourses closed in the red and U.S. stocks spent the day in negative territory. The DJIA finished lower by about -0.35% and the S&P declined by around -0.30%. The euro remained mostly firmer following Slovakia’s vote and the yen was stronger against all of the G10 currencies as investors sought safety in JPY.

In a second vote this week, Slovakia approved enhancements to the EFSF. It was the last of the 17 nations to ratify the changes which have now received the unanimous approval necessary for implementation. EFSF CEO Klaus Regling said that the board will finalize necessary guidelines quickly and will use the new instruments soon.

ECB President Trichet was on the wires and called on banks to reinforce their balance sheets as the ECB won’t act as the lender of last resort. He also noted that the euro as a currency is ‘evidently not in danger’ given its recent rise. EUR/USD has rallied to highs of around 1.3825/35 on recent optimism that EU officials will be more active in stemming the debt crisis and may see towards the 1.40 area, however in our view the common currency still faces many headwinds and we maintain our bearish outlook.

Economic data today showed U.S. weekly jobless claims remaining above the 400k level with initial claims coming in at 404k from the prior week’s 405k. The 4-week moving average fell by 7k to 408k – a sign that the labor market is moving in the right direction, although sluggishly. Trade balance figures out of the U.S. and Canada were also released. U.S. figures were mostly in line with expectations with a deficit of -$45.6B in August (cons. -45.8B prior -45.6B) and Canada showed a deficit of -0.62B which was better than the anticipated -1.00B (prior -0.54B). USD/CAD was slightly higher as the Loonie weakend on softer equities and lower oil. WTI crude was lower by about -1.21% following EIA data that showed weekly crude oil inventories rose by 1.34M barrels from the prior -4.68M decline.

Minneapolis Fed President Kocherlakota said that the Fed should reduce stimulus as the economy recovers and that the last two FOMC decisions diminish credibility – Kocherlakota dissented at the last two policy meetings.

Economic data out of the Asia/Pacific session includes Japan weekly securities investments figures, Sept. money supply and domestic CGPI. China is scheduled to release the Sept. CPI and PPI readings and the ANZ consumer confidence survey for Oct. is due out of New Zealand.