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British Pound Futures Volatility Forecast (10/04/2011)

British Pound futures unexpectedly rose during the last week. In fact, the market opened at 161.13, stabilised around 163 and closed at 163.78 whilst the volatility dropped dramatically to 0.48 (7.6% annualised).

The TGARCH curve is now 0.54% (8.5% in annual terms) and the plot seems suggesting an ulterior increase of the conditional variance in the short term.    As a consequence, British Pound futures could temporarily drop to 163 whilst volatility should achieve 0.56 – 0.58% (8.8% – 9.2% annualised) but once achieved this level the conditional variance should plummet once again bringing futures prices towards 164 – 164.2 by the end of the week.

The great depreciation of the US dollar against European currencies should continue in the medium term and that is why new highs in the spot market could be easily touched in the upcoming weeks.

The HyperVolatility team is moderately bullish on British Pound futures but before placing any longs we will wait for a clear sign of price recovery accompanied by a dropping volatility.

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