Major Market Sentiment

Written by Research | 11 October 2009

Closing Report for Oct 10 2009

U.S. markets closed at the highest level in a year. The Dow Jones rose 0.80% to end at 9,865 while the Nasdaq finish with a 0.72% gain. Gold holds at record highs and crude oil finished above $72 a barrel. Dollar rose across the board and recovered but is still down for the week. Oil prices edged lower Friday because of a strengthening dollar after Federal Reserve Chairman Ben Bernanke said this week,

that interest rates will have to be raised when the economy recovers in order to avoid inflation.It has been the weak dollar that has attracted billions in investments in energy markets this year because oil is priced in the U.S. dollar. Crude essentially becomes cheaper globally when the dollar falls.

EUR/USD is back above 1.4700 after being rejected from 1.4670. GBP/USD is consolidating at intra-week lows at the 1.5830 zone. USD/JPY extended gains during the American session and rose above 89.00 and peaked at 89.90.

USD/JPY jumped on Friday, rose for the first time after three days and posted the biggest daily increase since August. The pair peaked at 89.87, hitting the highest price in almost four days. The Dollar initially weakened against the Yen as it looked as if U.S. interest rates would continue to fall.  Traders drove this currency pair through the recent bottom but above the low for the year at 87.11.  Traders were initially worried the Bank of Japan would intervene at the low levels, but that never happened since the new policy of the BOJ not to intervene in the FX market since 2004 and was also mentioned by the head of currency trading of UBS Investment bank.

Talk of a possible hike in U.S. interest rates helped weaken the AUD USD and NZD USD on Friday.  These moves were most likely position paring after a strong rally this week and not a sign of a change in trend.  Australian Dollar traders will support this currency on any weakness because of the strong possibility of another rate hike by the Reserve Bank of Australia in November.  The next rally could be tentative for the New Zealand Dollar because of hawkish comments from the Reserve Bank of New Zealand.  The RBNZ is on record voicing its concerns about the value of the Kiwi and its possible negative effects on the economy’s recovery