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Japanese Yen Futures Volatility Forecast (30/08/2011)

Japanese Yen futures opened at 130.2 on Monday, rose to 130.5 on Tuesday, dropped to 129.9 on Wednesday, plummeted to 129 on Thursday and closed to 130.4 on Friday.

The current volatility is 0.52% (8.2% annualised) and the TGARCH plot is displaying an upward sloping curve which seems suggesting that the upcoming hours could see an increase in the market fluctuations rate. The chart clearly shows that the volatility plummeted, found stability around the 0.5% level (7.9% in annual terms) but never experienced any short term bursts. Consequently, the probability for the oscillation rate to augment are quite high and such a phenomenon could manifest itself in the next hours.

Japanese Yen futures are still trading in an unknown territory because the 130 threshold had never been violated over the last 2 years and the fact that the price action is now moving sideways but the volatility is at historically low levels is a very strong warning signal.

The HyperVolatility team is bearish Japanese Yen futures because the buying pressure should diminish over the next hours causing a rise in the conditional variance which will inevitably drag the price back down in the 127 – 127.5 area by Friday.

However, it is worth pointing out that this week the macroeconomics calendar is quite intense and therefore some worse-than-expected news in the fundamentals could easily “poison” futures prices which could achieve the 132-133 threshold before the end of the week.

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.

Swiss Franc Futures Volatility Forecast (22/08/2011)

The bearish view we shared one week ago has been partially confirmed because, although the market plummeted in the first half of the week due to the concerns regarding the Swiss Central Bank’s intervention, the bad news coming both from the macroeconomics and political worlds pushed investors to buy back the Swiss currency.

Swiss Franc futures opened at 127.6 on Monday, dropped to 126.2 on Tuesday, jumped to 126.8 on Wednesday, plummeted to 126.1 on Thursday and achieved 127.4 on Friday.

The actual volatility is 1.1% (17.4% annualised) and the TGARCH plot is visibly displaying a curve that is now moving sideways after having touched the 2% threshold (31.7% in annual terms) which is its five months high. Furthermore, the mean reverting process of the conditional variance seems to be somehow interrupted implying that the next trading days could still see a high degree of market fluctuations.

The HyperVolatility team is bearish Swiss Franc futures because the continuing intervention of the Swiss Central Bank and a probable increase in the conditional variance should drive the price action back down in the 125 area by Friday.

On the other hand, bad macroeconomics news and an ulterior drop in equity markets would augment the buying pressure and futures prices would skyrocket and touch the 129 threshold by the end of the next week.

British Pound Futures Volatility Forecast (22/08/2011)

The last week’s worst scenario analysis suggested a jump of British Pound futures in the 163 – 164 zone and effectively so it was. In fact, the bad macroeconomics data added to the delirium of Germany and France prime ministers contributed to destroy the last hope of recovery.

British Pound futures opened at 163.7 on Monday, touched 164.5 on Tuesday, jumped to 165.3 on Wednesday, dropped to 165.1 on Thursday and closed at 164.7 on Friday.

The actual volatility is 0.53% (8.4% in annual terms) and the TGARCH plot is visibly displaying a fairly stable curve, although slightly upward sloping, which has now touched its long term equilibrium point implying that the next days could see a similar amount of fluctuations in futures prices.

The great uncertainty and fear surrounding most of the equity markets is pushing many investors and traders to buy more and more dollars. At the same time the European debt crises is keeping money away from the Pound Sterling and the Euro whilst big flows are observed towards Swiss Franc and Japanese Yen.

The HyperVolatility team is moderately bearish British Pound futures because the volatility should keep increasing, although sensibly, in the upcoming trading sessions implying a further drop of the price action which could retest the 162 area by the next Friday.

Additionally, an ulterior violent plunge of equity markets would make the US dollar appreciate even more against European currencies and futures prices could even hit the 160 support level should the sell-off be as aggressive as the one we saw in the previous 10 trading days.

Japanese Yen Futures Volatility Forecast (22/08/2011)

The last week we were expecting a retracement of the market which would have been favoured by a softening of the panic among investors but the bad figures regarding the manufacturing industry in US and irresponsible politicians poured fuel on flames. In fact, Japanese Yen futures opened at 130.1 on Monday, rose to 130.3 on Tuesday, jumped to 130.7 on Wednesday, retraced at 130.6 on Thursday and closed at 130.7 on Friday.

The current volatility is 0.52% (8.2% annualised) and the TGARCH curve is clearly displaying a curve which is now fluctuating within its equilibrium point. The plot is highlighting a low volatility environment which is probably going to last for another while because the Japanese currency is being bought by investors who consider it a safe haven type of asset class.

Many investors and traders kept buying Japanese Yen futures in order to diversify their portfolios and run away from risky markets but it is worth noting that the Bank of Japan keeps trying to devaluate its currency and the current price action is clearly in an overbought zone with the volatility just ready to explode on the upside and drag futures prices back down again.

The HyperVolatility team is neither bullish nor bearish on this market because a lot of things will depend upon macro-events:

1)    An ulterior sell off will cause the volatility to remain where it is whilst the price action could hit the 131 – 131.5 area by Friday.

2)    Should things get back to normal in the equity world, Japanese Yen futures volatility would literally explode and the price would be inevitably pushed back down in the 128 area by Friday.

This week we decided to opt for a double scenario type of forecast because of the massive uncertainty amongst investors but we certainly reckon that the conditional variance is way too low to remain unaltered for an extended period of time.

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.

Swiss Franc Futures Volatility Forecast (14/08/2011)

The HyperVolatility team was right once again because the last week we forecasted a break through of the 128.5 – 129 level and the market opened well above that level. Swiss Franc futures opened at 132.64, jumped to 139.03 on Tuesday, retraced to 137.85 on Wednesday, dropped to 131.21 on Thursday and closed at 128.64 on Friday.

The actual volatilty is 1.59% (25.2% annualised) and the TGARCH plot is manifestly displaying an out-of-order situation in which the conditional variance has touched its higest level in 5 months. Moreover, it is clear that the volatility already commenced its mean reverting process but, in this case, we are looking at an inverse leverage effect where a volatility decrease is accompanying a plummeting price rather than an up move.

The intervention of the Swiss Central Bank started to have some effects on its currency futures since Wednesday onwards, however, we believe that most of the investors started to fear this market because it is clearly overbought and its volatility exploded on the upside although the market is in a robust uptrend.

The HyperVolatility team is bearish Swiss Franc futures because the inverse correlation between the price and its volatility will tend to get back to normal only in the medium term implying that an ulterior plunge of market fluctuations is going to go along with a dropping price. We believe that Swiss Franc futures will probably touch the 124 – 124.5 support by Friday.

It is worth adding that even this market is highly exposed to macroeconomics news meaning that further negative figures would push the price back into the 135 – 137 area.

British Pound Futures Volatility Forecast (14/08/2011)

The HyperVolatility team was bearish British Pound futures and we were expecting the market to retrace sharply and retest the 161.5 area and on Wednesday our profit target was successfully achieved. Specifically, British Pound futures opened at 163.3 on Monday, touched 163.12 on Tuesday, dropped to 161.32 on Wednesday, achieved 162.22 on Thursday and closed at 162.75 on Friday.

The actual volatility is 0.43% (6.8% annualised) whilst the chart is showing an upward sloping curve which seems suggesting that, over the next trading days, an increase in the fluctuation rate should be expected. Furthermore, it is interesting to notice that the conditional variance plummeted quite sharply, although the market retraced rather violently in the first 2-3 days of the last week, implying a positive correlation between British Pound futures and their volatility.

The US dollar should probably keep appreciating against Her Majesty’s currency because investors will try to “secure” their capitals for one more week before getting back to riskier markets.

The HyperVolatility team is bearish British Pound futures because the augment in the oscillation rate should hit prices in the upcoming week. It would not be surprising to see the market to retrace and test the 160 support by Friday.

On the other hand, should equity markets move sharply up, over the next days, British Pound could eventually head north and touch the 163.5 – 164 level.

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.

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