To The New World Order and Back

The recent dynamics of financial markets had displayed breathtaking swings from a possible market crash like in 2020 (and VIX running to 60) to a euphoric recovery of the S&P 500 index (with over 10% of growth for a single day). Let’s try to figure out whether or not we observe any paradigm shift across major asset classes.

The previous week’s stock market turmoil was not common: usually, stocks fall as the money flows to the US dollar (investors cash out), but this time we’ve witnessed the simultaneous fall of the DXY and US500 (S&P500 index).

That situation brought an extensive wave of fear in the market, with the volatility index of S&P 500 (Vix) driving to 60 – a rare occurrence observed only during the COVID-19 pandemic freefall in 2020 and volatility spike in 2024.

Recession fears have been spreading across the marketplace, while traders started to discount 5 possible rate declines in 2025. Everything had shifted back after US president Donald Trump had turned most of the tariffs back (except for China). As a result, we’ve seen a massive euphoric pullback of S&P 500, which was trimmed during Friday’s trading session. However, probabilities of a sharp interest rate drop have stabilized, according to the Fedwatchtool.

That’s a common behavior of the market during a bearish phase: bullish pullbacks tend to be furious and rapid, but they don’t last long and often end up with further liquidations.

The safest strategy in such conditions is to step aside the US assets and focus more on cross currency pairs, or Gold. The latter had already reached the new peak, so that might not be the best instrument to buy. In this review, we will focus on Crude oil and EURGBP (as a cross currency pair)

US Crude Oil

Crude oil had initiated a classical short coverage rally: despite a big bullish day, around 2% (42699 contracts on Nymex) of total open interest for Crude oil futures was liquidated, which means that a massive pullback was not associated with the new business coming in, but rather an old business getting out.

Despite the local optimism, market fear still dominates, with VIX getting back to 46, a quite notable level. With that, we can expect USOIL to continue sliding down in the near future and reach the area below $57, at least temporarily. The fair price according to expected supply and demand had shifted to $60 (previously $75), as published in the short-term energy outlook from eia.gov

EUR/GBP Currency Pair

Euro has gained a remarkable strength against the British pound during the latest round of tariff announcement from the US administration. However, from the historical studies we know that EURGBP rarely makes substantial trends, and more often it turns black having reached 2 standard deviations from the 20-day moving average (the upper band of the Bollinger Bands indicator). It is exactly where we observe the price now.

So, it is possible to observe the bearish turn for this currency pair, which may be associated with a bullish reversal for GBPUSD or stabilizing EURUSD or both.