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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.

Euro Futures Volatility Forecast (10/07/2011)

The last week we forecasted a bearish movement of Euro futures whilst the suggested profit target for potential short positions was within the 1.4300 – 1.4350 and our analysis proved very profitable and reliable once again. Particularly, the market opened at 1.4497 dropped to 1.4387 on Tuesday, closed at 1.4283 on Wednesday, touched 1.4328 on Thursday and plummeted to 1.4226 on Friday: a great trade!!!

The actual volatility is 0.7% (11.1% annualised) and the TGARCH plot is visibly displaying a downward sloping curve highlighting that the conditional variance should probably diminish over the next trading hours. Consequently, a plummeting volatility is a signal that the bear movement of Euro futures ran out of steam and that the price action should now be able to recover.

Furthermore, the 1.4120 is a crucial level and, in the past, proved to be a fairly stable support which has been broken only after several attempts, which lasted even 2 weeks. Also, Euro futures recovered very quickly all the time they broke through the aforementioned threshold meaning that many investors and traders need a very good fundamental reason to keep shorting Euro at this point.

Moreover, many market participants should now decide which of the 2 most important currencies in the world is the one more jeopardised by the post-crisis effects: US or Europe?

Since the future does not appear to be sparkling for both US and EU, at least in the short term, investors and traders will have to decide which is the least painful between the hammer and the anvil.

The HyperVolatility team is moderately bullish Euro futures because the plummeting in the price action did not produce much variance meaning that many market participants did not close their long positions or at least did not reverse them, hence, we are expecting a low volatility environment which should push the price back into the 1.445 – 1.45 area by Friday.

Lately, under a macroeconomic point of view we think many investors got used to Portugal’s sovereign debt problems and Greece instability but the US disappointing job figures were not expected by so many people.

Euro Futures Volatility Forecast (04/07/2011)

Euro futures rallied sharply throughout the entire week despite our bearish view because the Greek parliament approved the austerity package which, in turn, will bring ulterior cash injections in the country via a further bail-out plan sponsored by the European Union and the IMF. Nevertheless, we clearly stated that more macroeconomics news would have kept us away from this market and we closed our positions as soon as we noticed that the panic started to spread in the market.

Euro futures opened at 1.4246, rallied to 1.4334 on Tuesday, broke through the 1.44 threshold on Wednesday and managed to remain in a relatively high area because 1.4472 was the closing price on Thursday whilst 1.45 was Friday’s settlement: the Single currency heavily appreciated against the US dollar.

The actual volatility is 0.64% (10.1% annualised) and the TGARCH curve is obviously going through a period of relative calmness and tranquillity implying that the big appreciation of the Single currency against the greenback was fairly steady.

The HyperVolatility team is moderately bearish on Euro futures but we recon that a sideways movement is going to be the dominant “feature” of the price action in the next hours.

However, should the volatility surpass the 0.7% – 0.71% threshold (11.1% – 11.2% in annual terms) we would enter some shorts because the 1.45 resistance will hardly be broken and many bears will try to take advantage from such an event. Additionally, we think that the great rally is likely to be followed by a short term retracement which would push the price back into the 1.4300 – 1.4350 area but the aforementioned scenario is more likely to happen in the second half of the week.

Euro Futures Volatility Forecast (27/06/2011)

Euro futures opened at 1.4269 on Monday, rallied to 1.4368  on Tuesday, dropped to 1.4309 on Wednesday and kept decreasing for the remaining days, in fact, 1.4223 and 1.4149 were the closing prices on Thursday and Friday respectively.

Needless to say that the drop in the price has been primarily caused by the announcement of macroeconomics news which came below market expectation causing panic in the equity markets and a consequent appreciation of the US dollar against the Single currency.

The actual volatility is 0.69% (10.9% annualised) and the TGARCH curve, although moving within a narrow range and close to its equilibrium level, is now signalling a potential increase of the conditional variance over the next hours.

The HyperVolatility team is bearish Euro futures, at least in the short term, because the volatility is likely to augment over the next days whilst the price should retest the support placed in the 1.3990 – 1.4000 area by Friday.

Nevertheless, should the price be hit by ulterior macroeconomics news, that have been twisting many markets over the last 3 weeks, we will close out our short positions and step aside because panic is still the predominant feelings amongst many investors and traders.

 

Euro Futures Volatility Forecast (21/06/2011)

The sideways week we forecasted one week ago showed only the first half of the movement because the drop we “predicted” towards the 1.4230 area effectively happened but the recovery of the price was not as powerful as we thought. Specifically, the market opened at 1.4295 dropped to 1.4143 on Wednesday, it touched 1.4156 on Thursday and it closed at 1.4268 on Friday.

The current volatility is 0.78% (12.3% annualised) and the TGARCH plot is now displaying a curve which is about to mean revert and collapse towards the equilibrium point which is stable around the 0.6% level (9.5% in annual terms).

The main trend is clearly still bullish and the fairly stable volatility plot is just a mirror which highlights the great steadiness of the price action. The US dollar should keep depreciating against the Euro but the renewed concerns about Greece’s sovereign debt should push away some investors from this market and “convince” the remaining ones to re-size their positions.

The volatility will collapse over the next trading days but once the curve will have reached its status quo level a sideways movement of the price is an eventuality not to opt out.

The HyperVolatility team remains moderately bullish on Euro futures because the drop in volatility should favour a recovery of the price action but the Greece’s problems could have a negative effect in terms of buying pressure, nevertheless futures prices should retest the 1.445 – 1.45 area by Friday.

Euro Futures Volatility Forecast (13/06/2011)

The Single currency has been hit by the heavy appreciation of the greenback that was, in turn, caused by a constant decrease of equity indices. Principally, the market opened at 1.4571, rose to 1.4687 on Tuesday but it retraced to 1.4575 on Wednesday and the down move continued until the end of the week because 1.4504 and 1.435 have been the closing prices on Thursday and Friday respectively.

The actual volatility is 0.7% (11.1% in annual terms) and the TGARCH plot is now displaying a curve which surely increased but is still trading within its equilibrium range which goes from 0.58% to 0.77% ( 9.2% – 12.2% in annual terms).

Furthermore, the very last part of the curve shows a shy decrease of the conditional variance which could be a first indication that the down movement is quite close to an end.

Additionally, it is important to stress once again that the big appreciation of the US dollar against the Euro has been caused by the significant plunge in equity indices which pushed investors to buy dollars and the inverse correlation relationship between the American currency and the S&P500 it is a well know and documented fact.

The HyperVolatility team remains a bit sceptic about this market because the down move could continue during the next hours bringing the market in the 1.4230 area whit volatility readings around 0.74% (11.7% annualised). However, the buying pressure is probably going to reverse the trend and bring the exchange rate back in the 1.4650 zone by the next Friday whilst the conditional variance should touch 0.6% (9.5% in annual terms): sideways week ahead!!!

Euro Futures Volatility Forecast (06/06/2011)

The last week we were expecting an ulterior rise of Euro futures and effectively so it was. Specifically, futures opened at 1,4274 rose to 1.4328 on Wednesday, jumped to 1.4489 on Thursday and closed at 1.4633 on Friday.

The current volatility is 0.59% (9.3% in annualised terms) and the TGARCH curve is evidently falling although the massive rally which brought the single currency to heavily appreciate against the US dollar even if the critical and renewed attention of financial media on Greece’s sovereign debt.

The great drop of the conditional variance is clearly signalling a fairly robust condition of the price action and it is reasonable to believe that the mean reverting process of the oscillation rate will keep going on and eventually settle around 0.4% (6.3% annualised).

In other words, the depreciation of the US dollar against the Euro should continue, at least over the next trading days, and the exchange rate, backed by a diminishing volatility curve, could potentially achieve the 1.4780 – 1.4850 area by the next Friday.

The HyperVolatility team remains bullish on Euro futures, although the increasing concerns on Greece’s new bailout plan, because many investors and traders seem willing to push prices in the 1.50 area in the medium term.

Euro Futures Volatility Forecast (29/05/2011)

The US dollar heavily plummeted over the last week and this phenomenon totally twisted all our analysis. Euro futures opened at $ 1.4046 fluctuated around $ 1.4080 for a couple of days and finally rallied to $ 1.413 on Thursday but even in this case, the final price was much higher than Monday’s opening: 1.4292 was the registered closing price on Friday.

The volatility is now 0.72% (11.4% in annual terms) but the chart is still displaying a downward sloping curve which highlights the fact that the depreciation of the US dollar against the Single Currency is likely to continue.

The conditional variance will tend to decrease over the next week and mean revert in the 0.5% – 0.52% area (7.9% – 8.2% annualised) which has been the equilibrium point for more than 4 months and that is why it is reasonable to believe that the volatility curve will not break through this support.

The Euro will keep appreciating against the American dollar and Euro futures should move higher again.

The HyperVolatility team is bullish this market because the price is going to retest the $ 1. 4400 – $ 1.4500 threshold by the next Friday and the decreasing variance should accompany and sustain the recovery of the price action.

Should the volatility remain constant or plummet we will immediately enter the market.

Euro Futures Volatility Forecast (23/05/2011)

Euro futures went through a sideways week like many other markets during the last 5 trading days. Specifically, the price opened at 1.4167 rose to 1.43 on Thursday but it sharply dropped to 1.4156 on Friday.

The actual volatility is 0.63% (9.9% annualised) but the TGARCH plot is now displaying a decreasing volatility curve which highlights a great divergence between market fluctuations and the significant drop of the price which brought the market to close to 1.415 on Friday.

The volatility should decrease and touch the 0.61% support (9.6% annualised) but the down movement should not be over yet and the oscillation rate should augment once again over the next hours and retest the 0.75% area (11.9% in annual terms). In particular, the plunge in the conditional variance has been mainly caused by the lateral movement of the price action and does not really signal that bears have lost their control.

The HyperVolatility team remains bearish on Euro futures because the last week did not provide useful information about price direction since the uncertainty has been the predominant feelings amongst investors and traders.

Furthermore, we believe that the scenario did not change much from the last week and that the augment in volatility will drag futures prices back into the 1.400 – 1.405 zone by the end of the next Friday.

Euro Futures Volatility Forecast (15/05/2011)

The US dollar kept appreciating against the European currency because the volatility broke through the 0.7% (11.1% annualised) and the bearish week opened at 1,4345 plummeted to 1,4187 whilst 1,4089 was the closing price registered the last Friday.

The actual volatility is 0.87% (13.8% in annual terms) and, although the TGARCH curve seems highlighting a potential drop of the oscillation rate, the conditional variance did not decrease sharply as it usually happens when the down move runs out of steam after a significant price drop: meaning that the down move is not over yet.

Consequently, the next week should see a potential augment of the conditional variance which could even achieve the 0.9% – 0.93% level (14.2% – 14.7% in annual terms) by the end of the week whilst futures prices should continue to plummet although the 1.40 – 1.405 area could be a solid support.

The HyperVolatility team is bearish on Euro futures and we believe that an initial plunge in futures prices, accompanied by a short term rise in volatility, should be the major move in the upcoming trading days.

However, it is quite likely that futures prices, once achieved the 1.40 support, will start moving sideways until the next Friday.

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