Market Report: Dollar Could Be Poised for More Short Covering

Is it possible that our US jobless recovery might not be so jobless after all? Weekly jobless claims fell 12,000 to 502,000 giving the dollar a boost and the crude market a trouncing even before the bearish Energy Information Agency weekly inventory report. Oh sure, the overall jobless rate is still lousy but that puts the four week average at the best level in over a year and that gave some life the beleaguered dollar. Now with Obama on his way to China, the dollar could be poised for more short covering. We may see that happen when the Census Bureau releases the September balance, or should I say the imbalance, of trade data. The U.S. trade deficit is expected to widen to $32 billion from $30.7 billion in August. Most of that is with China.

There is growing global pressure on China to allow the Yuan to appreciate. The goal is to take some of the heat off the dollar and at the same time global commodity prices. All commodity prices have been as dependant on the dollar as the US is dependent on China buying our debt and as the Chinese are dependent on us buying their stuff. The Wall Street Journal says that the Federal Reserve's trade-weighted dollar index, which measures the greenback against a broad basket of currencies including the Chinese yuan, has fallen nearly 22% since 2002. Some argue that the 63% increase in U.S. exports during that time is no coincidence.

Crude oil moved off the rebound in the dollar and acted like it priced in the weekly numbers before the Energy Information Agency data was released. Maybe some traders read the API? Wow what a concept! Perhaps the most disturbing aspect of the EIA report was that fact that refinery runs fell to 79.9% of capacity a signal that demand is still very weak. The EIA reported that U.S. commercial crude oil inventories increased by 1.8 million barrels. That was higher than expected and put it at 337.7 million barrels which the EIA says is slightly above the upper limit of the average range for this time of year. Total motor gasoline inventories came in up 2.5 million barrels last week and are above the upper limit of the average range for this time of year. Distillate fuel inventories also increased by 300,000 barrels and are way above the average range for this time of year. And with weather not being an issue the demand prospects going forward are not that pretty. Matt Rogers at Commodity Weather Group LLC says we will see above normal temperatures persisting around until Thanksgiving. That is not good new to the natural gas market which gets its weekly report today. I think we will see an injection around 23 bcf's.