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Japanese Yen Futures Volatility Forecast (14/08/2011)

The Japanese currency was expected to break through the 130 level on the futures market and effectively so it was even if the 131 resistance was not achieved and the market settled just behind the 130.3 points. In particular, Japanese Yen futures opened at 128.9 on Monday, rose to 130 on Tuesday and moved sideways since then because 130.26, 130.2 and 130.23 have been the closing prices on Wednesday, Thursday and Friday respectively.

The actual volatility is 0.58% (9.2% annualised) and the TGARCH plot is visibly showing a downward sloping curve which has effectively touched its long term equilibrium point; that is 0.52% – 0.53% (8.2% – 8.4% in annual terms).

The Bank of Japan’s big sell-off did not manage to prevent its currency from appreciating, phenomenon that for a country which bases most of its revenues on exports could lead to financial catastrophe, but at least it decreased its growth rate.

Furthermore, most of the panic that we have been seeing in the market is now slowly dissipating and the fact that the volatility dropped significantly is a signal that the situation is about to change.

The HyperVolatility team is bearish Japanese Yen futures because the volatility should augment, at least in the short term, whilst the price should get back to normal and eventually touch the 126.5 level by Friday.

Nevertheless, ulterior bad macroeconomics news could alter and distort the price action once again by pushing Japanese Yen futures above the 131.5 threshold.

Euro Futures Volatility Forecast (08/08/2011)

The Single currency moved almost like the Pound and, even in this case, it is worth mentioning that such random oscillations of the price are just a consequence of the huge concerns about the US economy. In fact, Euro futures opened at 1.4231 on Monday, dropped to 1.4186 on Tuesday, jumped to 1.4301 on Wednesday, dropped to 1.4082 on Thursday and closed at 1.4277 on Friday.

The current volatility is 0.71% (11.1% in annual terms) and the TGARCH plot is clearly showing a volatility curve which is slightly upward sloping although it seems it has reached its medium term equilibrium point which is set to be around the 0.7% level (11.1% annualised).

The big drop of the S&P500 and the US debt downgrading will probably add pressure to the price action and increase the volatility in the short term. As mentioned for other analysis many investors will try to protect their portfolios and therefore large amount of capitals could flow from the equity indices towards the US dollar causing an appreciation of the greenback.

The problem is that many investors are now deciding between the least painful choices: US debt downgrading or Europe instability crises?

The HyperVolatility team is bearish Euro futures because the conditional variance should now head north provoking an appreciation of the greenback against the Single currency. Hence, Euro futures are likely to retest the 1.395 – 1.4000 area by Friday.

The situation in Europe is pretty bad with Spanish and Italian yields very close to the 7% warning zone. The ECB announced it would buy Spanish and Italian sovereign debt securities directly from the secondary markets but we do not think that such an intervention will be enough to cool down this hot summer.

Swiss Franc Futures Volatility Forecast (08/08/2011)

Needless to say that the massive sell-off that interested financial markets pushed all investors to seek some sort of safe asset and we know that the Swiss Franc is one of those. In fact, Franc futures opened at 127.7 on Monday, touched 130.7 on Tuesday, plummeted to 130.1 on Wednesday, rose to 130.3 on Thursday and closed at 130.6 on Friday.

The actual volatility is 0.43% (6.8% annualised) and the TGARCH plot is displaying a slightly upward sloping curve, although the conditional variance experienced an aggressive drop due to the sharp buying pressure which hit the Swiss Franc futures.

The volatility should head north in the upcoming days and mean revert towards the 0.6% level (9.5% annualised) but such an increase in the market fluctuation rate should be only a temporary one because many investors, frightened by what happened last week in equity markets, will seek security in the Swiss country.

The Swiss Central bank adopted some drastic measures to depreciate its national currency but the intervention did not meet central bankers’ expectation and since the panic is still high we believe that the situation will remain almost unchanged.

The HyperVolatility team remains bullish Swiss Franc futures, although a short term drop is highly probable in the first half of the week, and we think that futures prices will first plunge to 128.5 – 129 and then retest the 131 area by Friday. Consequently, the volatility will rise in the first 1-2 days of the week and then remain constant or eventually drop back as we approach the weekend.

British Pound Futures Volatility Forecast (08/08/2011)

The uncertain fluctuations that Her Majesty’s currency experienced are clearly due to the enormous indecision and fear about US economy. Last week the British Pound futures opened at 162.9 on Monday and stayed at that level on Tuesday but increased to 164.1 on Wednesday, dropped to 162.3 on Thursday and closed at 163.8 on Friday.

The actual volatility is 0.42% (6.6% annualised) and the TGARCH plot is now showing a downward sloping curve which is far from its medium term equilibrium point which is set around the 0.5% threshold (7.9% annualised).

The low volatility of British Pound futures, despite the wild oscillation observed in other markets, it is a warning signal and the fluctuations rate is very likely to augment over the next trading hours causing the US dollar to appreciate against the Sterling.

Furthermore, it is important to point out that, although the US debt has been downgraded, the US dollar remains the main reserve currency for many countries and many investors still consider it as a counterbalancing asset against equity indices drops.

The HyperVolatility team is bearish British Pound futures because the volatility should increase, at least in the short term, dragging prices back down in the 161.5 area by Friday.

Should things get worst for equity indices the US dollar could appreciate even more and British Pound futures would plunge to 159 – 160 in the worst scenario.

Japanese Yen Futures Volatility Forecast (08/08/2011)

The sharp drop that equity markets experienced over the last 10 days forced many investors to buy Japanese Yen futures which opened at 129.5 on Monday, rose to 129.8 on Tuesday, remained at this level on Wednesday, dropped to 126.5 on Thursday and closed at 127.6 on Friday.

The current volatility is 0.68% (10.7% in annual terms) and the TGARCH plot is clearly displaying an upward sloping curve which seems to suggest that an ulterior increase in the conditional variance should be expected in the upcoming trading days.

The Bank of Japan intervened, by selling something like 4 trillion yen, in order to prevent its currency from appreciating too much and this caused the heavy drop we all saw on Thursday. In particular, many investors got scared about a default of US and tried to diversify their exposure to market risk by investing in safe havens which is precisely why we had a violent appreciation of the Japanese currency against the dollar.

The HyperVolatility team is bullish Japanese Yen futures because the US debt downgrading, the European debt concerns and the slow growth in the global economy will “motivate” many investors to keep their money in “safe assets”. Particularly, the volatility should start softening over the next trading days whilst the buy pressure should augment despite the desperate intervention of the Bank of Japan to prevent its national currency from a further sharp appreciation which would heavily affect their economy given the fact that Japan is primarily an exporting country.

Japanese Yen futures should retest the 130 level and eventually break through it by Friday. The price action could even touch 131 should the global economy provide ulterior signs of weakness.

Euro Futures Volatility Forecast (02/08/2011)

Euro futures opened at 1.4356 on Monday, moved to 1.4486 on Tuesday, plummeted to 1.4346 on Wednesday, settled at 1.4297 on Thursday and closed at 1.4368 on Friday.

The actual volatility is 0.68% (10.7% in annual terms) and the TGARCH chart is clearly showing a curve which has now completed its mean reverting process and it is not trading within its long term equilibrium point although still upward sloping.

Euro futures are trading just below the resistance placed at 1.4500 – 1.4550 and a breakthrough of this important psychological point could be possible in the near future but in order to remain above the aforementioned threshold the next news regarding the US economy such as NFP and unemployment should be very bearish causing the US dollar to depreciate even more against the Single currency.

The HyperVolatility team is bullish the Euro futures market because the steadiness of the volatility plot should be a good indicator for the robustness of the uptrend we all saw since the beginning of July. Consequently, the price action should keep rising and eventually touch 1.4580 by Friday.

Nevertheless, some short term explosions of the conditional variance could alter the picture but the overall trend should remain unchanged and therefore bullish.

Swiss Franc Futures Volatility Forecast (02/08/2011)

Swiss Franc futures opened at 124.1 on Monday, moved to 124.8 on Tuesday, settled at 124.8 on both Wednesday and Thursday whilst 127.2 was the closing price registered on Friday.

The volatility is now 0.6% (9.5% annualised) and the TGARCH plot is displaying an upward sloping curve which seems to have completed its mean reverting process. The volatility of the Swiss Franc is trading within its long term equilibrium point implying that the next trading days will see a softening of the conditional variance and a consequent decrease of the risk associated with unexpected price jumps.

Swiss Franc futures managed to break through the 126 threshold last week and, as mentioned in the British Pound forecasts, the price is now trading in an unknown territory. Specifically, the Swiss currency has never appreciated so much against the US dollar but the need for security attracted many investors towards this market as it always considered being a kind of safe haven during rough waters.

The HyperVolatility team is bearish Swiss Franc futures because a short term retracement accompanied by an increasing volatility should drag the price back down in the 124 area.

Nevertheless, bad macroeconomics news and unexpected events could push investors to protect their portfolios by going long the Swiss currency once again and therefore it is worth watching very closely the economic calendar.

British Pound Futures Volatility Forecast (08/02/2011)

British Pound futures opened at 162.6 on Monday, rose to 164 on Tuesday, dropped to 163.1 on Wednesday, settled at 163.4 on Thursday and closed at 164 .08 on Friday.

The current volatility is 0.31% (4.9% annualised) and the TGARCH is showing an upward sloping curve whose analysis seems suggesting that the upcoming days will see an increase in price fluctuations.

Furthermore, British Pound futures are very close to the historically robust resistance point placed at 1.65 and only an ulterior strong depreciation of the US dollar caused by severe macroeconomics news could push investors above this level.

The HyperVolatility team is bearish British Pound futures because the volatility curve should augment in the upcoming days causing an ulterior weakening of the price action whilst the strong psychological threshold, that is1.65, should not be violated.

Consequently, a short term augment of the conditional variance is likely to drag futures prices back down in the 161 zone by Friday.

Japanese Yen Futures Volatility Forecast (02/08/2011)

The Japanese Yen opened at 127.7 on Monday, touched 128.3 on Tuesday, settled around 128.2 on Wednesday, moved to 128.6 on Thursday and closed at 130.1 on Friday.

The actual volatility is 0.52% (8.2% annualised) and the TGARCH plot is clearly displaying a fairly calm volatility curve, with some very short term augments of the conditional variance, which is now trading within its equilibrium level which is set at 0.5% (7.9% in annual terms).

Furthermore, the price is now trading very closely to the 130 resistance point but, as we anticipated the last week, this is an unknown territory because Japanese Yen futures never managed to break through this price in the last 2 years.

The Japanese Yen futures market has been used by many investors to diversify their portfolio risk whilst earning some small but constant returns in the long term and that’s why we witnessed to a quite steady uptrend over the last 3-4 months. The big question is: is this trend going to last forever?

The HyperVolatility team is bearish Japanese Yen futures because the extremely low volatility environment, which should explode in the short term, and the closeness to a key resistance point are factors that will push the price down back in the 126.8 – 127 area by Friday.

Euro Futures Volatility Forecast (24/07/2011)

Euro futures, like most of the other currencies, heavily appreciated against the US dollar throughout the past 5 trading days. In fact, the market opened at 1.4084 on Monday, moved to 1.4116 on Tuesday, rose to 1.419 on Wednesday, jumped to 1.4376 on Thursday and closed at 1.4339 on Friday.

The actual volatility is 0.28% (4.4% in annual terms) and, even in this case, the TGARCH plot is manifestly displaying an out of order situation where the volatility curve is way too low and almost next to touch 0.

It is evident that such a situation is not sustainable in the long run and that is precisely why the upcoming days are likely to see an augment of market variance with a consequent recovery of the US dollar over the Single currency.

Historically, this is the 4th attempt in 2 years to break through the 1.50 area. The first time was in May-June 2011 and even if the price fluctuated within the 1.49 – 1.50 ranges for a while the bears managed to push the price back down again. The second time happened in June 2011but in that case the 1.47 level was never surpassed and the third time was at the beginning of this month when the price hit 1.4535 – 1.4540 and then collapsed. Now we are “witnessing” the fourth attempt, even if the 1.44 threshold proved to be quite solid, and the price action already seems showing some evidence of weakness.

Furthermore, the recovery of the US dollar over the next trading days seems to be a quite likely scenario not just for the Euro but also for the Japanese Yen, British Pound and Swiss Franc.

The HyperVolatility team is bearish Euro futures because the volatility will almost certainly rise over the next trading hours causing a plummet of futures prices which are likely to retest the 1.400 – 1.4050 area by the next Friday.

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