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Euro Futures Volatility Forecast (27/09/2011)

Euro Futures opened at 1.36 on Monday, remained unchanged on Tuesday, plummeted to 1.35 on Wednesday, plunged to 1.346 on Thursday and closed at 1.35 on Friday.

The volatility is now 0.8% (12.6% annualised) and the TGARCH curve is neither upward nor downward sloping even if the very last part of the plot seems suggesting a shy increase in the conditional variance. However, the fluctuations rate is now very far from its medium term equilibrium point which ranges between the 0.73% – 0.77% area (11.5% – 12.2% in annual terms).

The first half of the week could see the Single currency to depreciate against the US dollar because the oscillation rate is still looking at the northern part of the chart but it is likely that the rumours about the 2 -3 trillion euro package to save Europe from financial catastrophe will provoke some speculative buying.

European leaders are now calling for a more concrete action to bail out Greece (later is better than never) and to prevent the crises from spreading to too-large-to-be-saved countries (read Italy and Spain): we will see if facts will follow words because the latter are cheap but the former are not!!!

The HyperVolatility team is moderately bullish Euro futures, even if the first half of the week could see another downside move, and the conditional variance should soft over the next trading hours whilst the price action should eventually retest the 1.3600 – 1.3700 area by Friday.

Needless to say that an ulterior macroeconomics shocks would irremediably drag futures prices down as more and more investors will rush to buy US dollars.

 

Euro Futures Volatility Forecast (19/09/2011)

Euro futures opened at 1.3653 on Monday, touched 1.368 on Tuesday, rose to 1.375 on Wednesday, jumped to 1.3881 on Thursday and settled at 1.3788 on Friday.

The actual volatility is 0.7% (11.1% in annual terms) and the TGARCH plot is evidently displaying a sharply downward sloping curve which is now trying to get back to the 0.6% level (9.5% annualised). However, it is worth noting that the volatility, at least over the last week, has been closely following the price action giving birth to a symmetric leverage effect although the big spike has been primarily caused by the big drop which dragged futures prices from 1.41 to the 1.37 area.

The great uncertainty which is surrounding financial markets is mainly due to Europe and its future therefore many traders will probably keep the exchange rate at historically low level unless concrete measures to avoid Greece’s default and prevent sovereign debt contagion will be taken.

The HyperVolatility team is moderately bearish Euro futures because the drop in volatility, in this case, will accompany a further depreciation of the Single currency against the Dollar. Therefore, the 1.3400 – 1.3450 threshold could be retested before the end of the week but the FOMC announcement on Wednesday could twist the scenario.

Euro Futures Volatility Forecast (06/09/2011)

Euro futures opened at 1.4504 on Monday, plunged to 1.4439 on Tuesday, settled at 1.437 on Wednesday, plummeted to 1.4267 on Thursday and closed at 1.4193 on Friday.

The actual volatility is 0.73% (11.5% in annual terms) and chart is evidently showing an aggressively upward sloping volatility curve which seems to suggest that a higher degree of market fluctuations should be expected in the upcoming hours. Unlike British Pound futures the plunge in Euro futures prices has been accompanied by a large selling pressure which inevitably lifted the conditional variance.

The concerns about the diminished growth in Europe in addition to the problems connected to the sovereign debt crises are going to augment the selling pressure in the short term.

The HyperVolatility team is bearish Euro futures because the conditional variance should rise in the short term whilst the price action is likely to retest the 1.3900 – 1.4000 area by Friday.

Euro Futures Volatility Forecast (30/08/2011)

Euro futures opened at 1.4358 on Monday, rose to 1.4441 on Tuesday, retraced to 1.4410 on Wednesday, jumped to 1.4376 on Thursday and closed at 1.4491 on Friday.

The actual volatility is 0.71% (11.2% in annual terms) and the TGARCH plot is displaying a stable volatility curve, although sensibly upward sloping, which seems suggesting that in the upcoming hours the market should not experience big jumps or sudden volatility bursts. Clearly, there could be some short term retracements but, even in this market, the mean reverting process tends to be very quick and powerful implying that all “odd moves” are likely to get averaged out.

The HyperVolatility is bullish Euro futures because the conditional variance should not augment in the short term and the price action should move upward over the next trading days. Consequently, futures prices should retest the 1.50 threshold by the end of the week although some short term drops are quite likely to occur but their impact should not be significant in the medium term.

 

Euro Futures Volatility Forecast (22/08/2011)

The forecast we gave you the last week proved very useful and profitable because the 1.4400 target has been successfully achieved by the price action over the last trading days. In fact, Euro futures opened at 1.4434 on Monday, dropped to 1.4401 on Tuesday, jumped to 1.443 on Wednesday, plummeted to 1.4332 on Thursday and closed at 1.4383 on Friday.

The actual volatility is 0.72% (11.4% annualised) and even this week the TGARCH chart is showing a fairly stable curve which seems not to mirror the great instability and uncertainty that is hitting all financial markets worldwide. Moreover, Euro futures volatility is trading within its long term equilibrium point and, even though the curve is upward sloping, there are no signals of any imminent explosion of the conditional variance although some short term increase is not to exclude.

The situation in US is not really comforting whilst the European debt crises is making everybody more and more concerned about the future of the global economy. Consequently, many traders and investors are purposely avoiding this market, which was one of the few not to experience wild fluctuations, because they switched their attention towards more “popular” asset classes.

The HyperVolatility team is moderately bullish this market because there should not be short term explosion of the volatility and the upcoming trading hours should see a sideways movement of the price action followed by a recovery of futures prices which could retest the 1.4500 threshold by Friday.

It is worth noting that ulterior bad news coming from European peripheral countries could trigger a massive sell-off which would irremediably see the US dollar to appreciate against the Single currency whose closing value could touch the 1.4000 zone.

Euro Futures Volatility Forecast (14/08/2011)

The futures on the Euro-Dollar have been trading in a very narrow range despite the high volatility and wild swings that other markets experienced over the last 5 trading days. In fact, Euro futures opened at 1.4177 on Monday, rose to 1.4365 on Tuesday, dropped to 1.4185, achieved 1.4217 on Thursday and closed at 1.4247 on Friday.

Euro futures, unlike other markets, did not experience aggressive movements , and therefore violent price swings, which would have otherwise sent the volatility through the roof.

The current volatility is 0.72% (11.4% in annual terms) and the TGARCH plot is clearly showing a curve which is neither upward nor downward sloping. The conditional variance is now trading close to its long term average, that is between 0.68% – 0.7% (10.7% – 11.1% annualised), and apparently there are no signs of any imminent explosion of futures prices in the near term.

The US dollar should depreciate, at least in the short term, against the Single currency and the really low fluctuations rate, if compared to other markets, is a warning signal that should not be ignored.

The HyperVolatility team is bullish Euro futures because the volatility should increase along with the price, in an inverted leverage effect process, which should push futures back in the 1.4400 – 1.4500 by Friday.

However, a great deal of attention is needed for this market since investors do not trust neither the US dollar nor the Euro because, given the situation of the economy in both the States and Europe, it would be like choosing to get hit with a big stone or a hammer.

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.

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.

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.

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