Oil May Decline on Plunging Wall Street & Soaring VIX

WikiFX News (4 Sept) - On Thursday, the Wall Street saw a sharp drop ahead of the upcoming non-farm payrolls; The fear index (VIX), a popular measure of the stock market's expectation of volatility, largely rallied to an intraday high of 35.94% from 25.66%; WTI crude further penetrated the level of $41.30 to an intraday low of $40.22.

As the FED Chair Powell has repeatedly emphasized the importance of labor data earlier, bulls took profits before the release of non-farm payrolls, which punished U.S. stocks after fresh highs in a row.

On the other hand, Markit announced yesterday that its final reading of the Services PMI was 55, indicating the U.S. economy is regaining energy. However, such recovery occurs in an imbalance way as the activities of consumer-oriented sectors are still falling steadily due to the continuous practice of social distancing.

Moreover, the uncertainty in Sino-U.S. trade also curbs markets' bullish outlook. The Wall Street may see its short-term loss deepened in future tradings, and the downside may be steep if the upcoming non-farm payrolls prove to be poor.

WTI is struggling around the level of $41.30 and may further test the support here in the short run, while a breach below the level may bring $34.50 on the radar in the medium run. The factor that most limits oil prices is the sluggish revival of demand due to the uncertainty in global economic recovery. Consequently, oil prices are expected to be weak before the good news about vaccines being more specific.

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VIX Chart