Crude oil ended yesterday with a sharp decline wiping out all the gains obtained during the year, as fears of another recession is dominating the markets. Shall the U.S. and other major economies slide into a second recession that will cause demand for oil to drop, as economic slowdowns typically dampens demand for commodities. Moreover, today all eyes are on the key non-farm payrolls which may show the U.S. didn’t create enough jobs in July to reduce unemployment, which will cause oil to drop further.

Light sweet crude oil for September opened today at $86.38 a barrel recording the intraday high at $86.63 a barrel and a low of $82.88 a barrel and is currently trading around $83.99 a barrel.

The dollar index surged to the high of 75.44 as confidence in the markets is fading away and investors are tending toward low-yielding assets, which pushed oil further to the downside, and today the dollar’s trading is volatile as it opened at 75.27 and it fell to the low of 75.01 and currently trading around 75.10.

In Europe, tensions are still ongoing with the rise in Italian and Spanish bond yields to records high versus German bunds which prompted ECB policy makers to announce special liquidity operation with maturity of six months that will start on Aug 11. In addition, the ECB will extend its existing liquidity measures till the end of the current year.

Yesterday the Bank of England and the European Central Bank kept their interest rates unchanged in order to support the economy as the pace of growth slows.

On the other hand the U.S. is not showing any signs of recovery, as yesterday Wall Street closed the session in deep red and the benchmark indexes slashed almost 5 percent; gloomily recording the biggest slump since February 2009. U.S. shares extended the drop amid growing fears with uncertainty prevailing in financial markets, after speculation that both American and European economies could be relapsing on the late debt woes and following mostly disappointing economic releases, spurring pessimism regarding the outlook of the global economy during the second half of 2011.

The focus today is mainly on the nonfarm payrolls which will reflect the true state of the economy. The reaction to the numbers is going to be very volatile and expected that 85 thousand jobs will be added to the economy, we expect that trading will remain volatile until the release of the NFP which will define the market sentiment for the coming period.