British Pound Futures Volatility Forecast (06/06/2011)

We were bullish the British Pound and, although the beginning of the week did not show a particular interest of investors in pushing higher futures prices, on Thursday and Friday a fairly sharp rally brought back the price in the 164 area.

Specifically, the market opened at 164.6 it then dropped to 163.3 but on Thursday it rose to 163.7 whilst 164.2 was the closing price on Friday: substantially a sideways week.

The uncertain scenario we saw has been mainly caused by the US dollar which has been heavily affected by macroeconomics news. In fact, the short week (considering the bank holiday) and the Non Farm Payroll figures created quite a lot of indecision amongst investors.

The actual volatility is 0.43% (6.8% annualised) and although the TGARCH curve is upward sloping there should not be much volatility coming over the next trading days because the conditional variance is moving within its equilibrium range which is around 0.45% (7.1% in annual terms).

The HyperVolatility team remains bullish on British Pound futures because we believe that the low volatility scenario and the non astonishing macroeconomics news released on Friday will cause the US dollar to decrease even more against Her Majesty’s currency.

Everything else being equal, we would expect futures prices to hit the 165.5 – 166.5 area by the end of the next week.

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