Optimistic Crude Oil Traders Drive Market Up 4 Percent

Trading was relatively light on Monday ahead of the start of the informal discussions in Algiers between OPEC and other major oil exporters and the first U.S. presidential debate at 0100 GMT Tuesday. However, the thin trading conditions may have led to today’s volatility in crude oil and U.S. stock markets.

Crude oil prices rose nearly 4 percent on Monday, or what the market lost on Friday as the world’s largest oil producers began their informal three day meeting. Volatility in oil futures reached its highest level since the last meeting in Doha back in April.

Big money is worried about the excessive volatility while being skeptical that the oil producers can reach an agreement to either freeze or reduce production. Recent government data shows that last week, money managers reduced their bullish positions to a one-month low. The liquidation was especially evident last Friday.

Traders are saying that standing in the way of an agreement to curb production is Saudi Arabia and Iran. These two countries also stood in the way of a similar proposition in April.

Gold Loses Its Luster         

Gold prices fell on Monday for a second day as investors continued to shed position put on last week after the Fed’s decision to leave interest rates unchanged. Today’s weaker market may have also reflected another round of fresh shorting. Traders also reduced positions due to the uncertainty ahead of the U.S. presidential debate.

The market failed to gain the momentum it had after the Fed announcement which suggests sluggish demand. According to the U.S. Commodity Futures Trading Commission, hedge funds and money managers slashed their net long position in COMEX gold for a second straight week in the week to September 20.

Dollar Down, Currencies Up

Foreign currencies were strong on Monday. The USD/JPY continued its weakness after Bank of Japan Governor Haruhiko Kuroda conceded that the central bank has been unable to weaken the Yen. He also reiterated his warning that the BOJ stands ready to use every possible policy tool to achieve its 2 percent inflation target. He also said he saw no big increase or decrease to its bond buying for now.

The EUR/USD rose on Monday as U.S. equity markets sold-off. The Euro is a funding currency and tends to rally when stocks weaken because investors are often forced out of their positions and use the proceeds to pay back loans borrowed in Euros.

British Pound investors took advantage of oversold technical conditions and a weaker dollar to drive the GBP/USD higher by 0.03%.

In economic news, U.S. New Home Sales rose more than expected to 609K. Traders were looking for a read of 598K. The good news, however, failed to move the markets since most investors were focusing on the debates.