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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.

 

Swiss Franc Futures Volatility Forecast (27/09/2011)

Swiss Franc futures opened at 112.8 on Monday and remained stable at this level on Tuesday but on Wednesday the price hit 111.4 whilst it plummeted to 110.4 on Thursday and settled at 110.7 on Friday.

The actual volatility is 1% (15.8% in annual terms) and the TGARCH curve is still showing a persistent lateral movement which is probably going to last in the upcoming days because the heavy intervention of the Swiss Central bank  scared away many investors who were,instead, seeking protection.

Swiss Franc futures is now an almost dead market. The intervention of the Swiss monetary authorities poised the price action and the massive drop in volatility is simply the natural consequence of the aforementioned equilibrium distortion.

The HyperVolatility team is slightly bullish Swiss Franc futures because the low volatility environment should support the price action which could potentially retest the 112 -113 threshold by Friday. However, any large move on the upside will be heavily arbitraged away from the Swiss Bank giving a great arbitrage opportunity to traders who will look to short Swiss Franc futures should they move too further away.

Overall, the week should see a large lateral movement of the price action with very short term movements,potentially  on the upside, that are not going to distort the price action that much.

British Pound Futures Volatility Forecast (27/09/2011)

British Pound Futures opened at 156.6 on Monday and settled at the same price on Tuesday, dropped to 154.9 on Wednesday, touched 153.4 on Thursday and settled at 154.7 on Friday.

The current volatility is 0.57% (9% in annual terms) and the volatility curve is evidently displaying an upward sloping trend which is a natural consequence of the large plunge the price action experienced over the last week. On the other hand, the conditional variance has now touched its 5 months high and an ulterior explosion of the fluctuations rate should be considered very carefully.

The large retracement in the market was caused by a sharp appreciation of the dollar which has been, in turn, provoked by the sell-off that hit financials the last week.

The HyperVolatility team is moderately bullish British Pound futures because the conditional variance will probably tend to soften over the next trading days supporting the price action which is likely to retest the 156 – 157 area by Friday.

Needless to say that the US dollar remains one of the few safe havens left and therefore a worsening of the European sovereign debt crises would push more and more traders to long the greenbacks and short Her Majesty’s currency: another delicate week ahead!!

Japanese Yen Futures Volatility Forecast (27/09/2011)

Japanese Yen Futures opened at 130.4 on Monday and remained at the same level on Tuesday, moved to 130.5 on Wednesday, rose to 131.2 on Thursday and closed at 130.4 on Friday.

The actual volatility is 0.45% (7.1% annualised) and the TGARCH curve is clearly moving sideways. It would appear that market participants do not expect wild fluctuations in the price action, at least in the short term, although the fact that the conditional variance did not increase despite the consistent drop occurred on Friday is a bit of a warning signal.

Japanese yen futures decreased sharply on Friday even if the equity markets saw an heavy sell-off because the intervention of the central bank of Japan scared away many investors that are now looking for protection elsewhere.

The HyperVolatility team is neither bearish nor bullish. We think that there could be a very short term explosion of the volatility in the first 2 days of the week but the overall picture should remain almost unchanged with futures prices probably settling around the 130 – 130.5 area by Friday.

E-Mini S&P500 Futures Volatility Forecast (19/09/2011)

E-Mini S&P500 futures opened at 1,163 on Monday, rose to 1,171 on Tuesday, jumped to 1,187 on Wednesday, achieved 1,211 on Thursday and closed at 1,214 on Friday.

The actual volatility is 1.4% (22.2% annualised), which is still a fairly high value if we consider an average fluctuations rate of 0.7% – 0.8% (11.1% -12.6% in annual terms), but the slope of the curve is now clearly downward sloping. Hence, the upcoming days should see an ulterior flattening of the conditional variance which, ceteris paribus, should complete the mean reverting process and settle around the abovementioned average values.

The current week does not present much macro-economic news coming from the States, apart from the FOMC announcement, and as a consequence most of investors’ eyes will focus on the European sovereign debt crises.

The HyperVolatility team is moderately bullish E-Mini S&P500 futures because, should the volatility keep in its downward trend, the price could touch the 1,230 – 1,240 by Friday.

The market remains highly unstable and any bad news coming from European politicians is going to provoke a short term sell-off which would completely twist our analysis.

VIX Index Volatility Forecast (19/09/2011)

The VIX Index opened at 38.59 on Monday, dropped to 36.91 on Tuesday, plunged to 34.6 on Wednesday, settled at 31.97 on Thursday and closed at 30.98 on Friday.

The current volatility is 7.5% (25.9% monthly) and the TGARCH chart is showing a volatility curve which is quite close to its long term equilibrium point and therefore about to complete its mean reverting process. The last week saw some ups and downs in volatility, which are evident in the very last part of curve, but a break through the 7% level (24.2% monthly) should signal an ulterior drop of the oscillation rate and a potential settlement of the latter around the 4% threshold (13.8% monthly).

The HyperVolatility team is moderately bearish the VIX Index because the overall movement is still pointing towards a total retracement of the volatility towards it long term equilibrium point. Consequently, the VIX should touch the 25% area by the next Friday but, given the actual market conditions, short term bursts of the volatility are very likely to occur.

Even in this case the FOMC statement is going to play a key role.

E-Mini Nasdaq Futures Volatility Forecast (19/09/2011)

E-Mini Nasdaq futures opened at 2,196 on Monday, jumped to 2,220 on Tuesday, rose to 2,250 on Wednesday, achieved 2,291 on Thursday and closed at the same price on Friday.

The current volatility is 1.3% (20.6% annualised) and the TGARCH plot is clearly displaying a downward sloping curve which implies that the upcoming days could see a diminished rate of volatility and welcome a recovery of the price action. However, this level proved to be a strong support level in the past and a failure to break through the 1.1% – 1.2% area (17.4% – 19% in annual terms) would probably signal that the volatility could keep going up and eventually retest the 2% area (31.74% annualised).

The HyperVolatility team is moderately bullish E-Mini Nasdaq futures because the decrease in the conditional variance should keep the price action up. Specifically, there is a chance that the 2,350 – 2,370 area get retested before the end of the week but the movement is likely to be very weak and choppy.

The fact that the volatility is diminishing does not mean that short term retracement of futures prices are to exclude. The nervousness amongst investors is palpable and any negative news could change the direction of this fragile market.

Needless to say that the FOMC statement is going to play a key role this week and it is definitely worth watching.

VXN Index Volatility Forecast (19/09/2011)

The VXN Index opened at 37.97 on Monday, dropped to 36 on Tuesday, plunged to 33.36 on Wednesday, touched 30.67 on Thursday and closed at 29.36 on Friday.

The current volatility is 6.1% (21.1% monthly) and the volatility curve seems now ready to complete its mean reverting journey which should end around the 4% – 4.5% threshold (13.8 -15.5% monthly) although some short term retracements are still likely to occur over the next trading hours.

The volatility of the VXN Index is clearly signalling that in the upcoming hours the implied volatility of the Nasdaq100 options should diminish but such a scenario is going to hold only if the concerns regarding European debt are going do not unleash an ulterior sell off.

The HyperVolatility team is moderately bearish the VXN Index which could eventually retest the 25% level by Friday. Nevertheless, the likelihood of a short term explosion of the conditional variance remains pretty high because despite the numerous meeting European politicians appear unable to come up with a concrete plan which would save Greece and prevent a domino effect which would destroy the entire old continent economies.

DJ EuroStoxx50 Futures Volatility Forecast (19/09/2011)

DJ EuroStoxx50 futures opened at 2,022 on Monday, rose to 2,047 on Tuesday, touched 2,113 on Wednesday, jumped to 2,176 on Thursday and closed at 2,152 on Friday.

The current volatility is 3.3% (52.3% annualised) and the TGARCH plot is manifestly showing a volatility curve which is moving sideways although still trading in a very high range. The downward inclination of the slope seems suggesting that the upcoming trading days will see an ulterior decrease of market oscillations and that the mean reverting process will finally start to become more and more evident.

The concerns surrounding Europe and in particular Greece are still pretty high amongst investors, however, the decrease in the fluctuation rate is signalling that some investors became more optimistic about the future of the Single currency after the statement that “Greece will remain in the Eurozone” (at least according to Nicolas Sarkozy and Angela Merkel).

The HyperVolatility team is moderately bullish DJ EuroStoxx50 futures because an ulterior drop in the conditional variance could easily support the price action which could head north during the hours and eventually retest the 2,250 area.

On the other hand, the rise in price is going to be very weak and the fact that the volatility curve is still trading around the 3% area implies that the risk of sharp retracements remains concrete.

German Bund Futures Volatility Forecast (19/09/2011)

German Bund futures opened at 138.1 on Monday, dropped to 137.5 on Tuesday, plummeted to 136.7 on Wednesday, touched 136.1 on Thursday and closed at 136.7 on Friday.

The current volatility is 0.58% (9.2% annualised) and the TGARCH plot is displaying a downward sloping curve which is trying to complete its mean reverting process towards the 0.4% – 0.45% threshold (6.3% – 7.1% in annual terms). The drop in the conditional variance is a strong signal that the buying pressure is now in a downtrend and that the next trading days could see both a softening of the oscillation rate and a slow decrease of futures prices.

German Bund futures have been heavily bought by investors seeking protection against equity markets storms but an ulterior plunge in the volatility curve is a strong signal that the buying pressure is now diminishing (for a more precise explanation of the relationship between German Bund futures and volatility please watch our video-research on our HyperVolatility Channel).

The HyperVolatility team is moderately bearish German Bund even if we reckon that a sharp drop in futures prices is quite unlikely. The market will probably retest the 135 area by Friday but a sideways movement should dominate the upcoming trading hours.

Some short term opportunities could come during the FOMC announcement as many traders will attempt to buy Bund futures in order to avoid violent price shocks in risky markets.

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