British Pound Futures Volatility Forecast (04/07/2011)

The HyperVolatility team was right once again. In fact, the last week we were bullish British Pound futures and our profit target was set at 162 – 162.5 and although the market did not reach that point our projection proved extremely reliable and profitable.

Particularly, British Pound futures opened at 159.7 on Monday but they suddenly rose to 160.5 on Wednesday and, although the market moved sideways on Thursday, where 160.3 was the closing value, the price managed to move even higher and settle at 160.5 on Friday

The current volatility is 0.44% (6.9% in annual terms) and the TGARCH curve is visibly upward sloping implying that the mean reverting process of the volatility is not over yet because the conditional variance, during the next days, will try to settle around the 0.52% area (8.2% annualised) which is the equilibrium point.

The great depreciation of the US dollar against the Pound sterling clearly played a central role over the last week but the comforting news coming from Greece helped almost all European currencies to appreciate against the greenback.

On the other hand, the augment in volatility is a quite probable occurrence because the curve will probably settle around the 0.5% level (7.9% annualised) dragging down Pound futures in the 159 area by Friday.

The HyperVolatility team is moderately bearish British Pound futures but the down move should not aggressive or violent but rather constant and continuous although the breakthrough of the 160 support could push the conditional variance up again.

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