British Pound Futures Volatility Forecast (19/12/2010)

The last week we forecasted a down movement of Pound futures and indeed prices went from 157 to 155 but such a drop made the volatility collapse tremendously. The TGARCH plot displays a decreasing curve which went from 0.61% to 0.51% (9.8% and 8% respectively in annual terms) and if we bear in mind that volatility should decrease when the price goes up this movement is extremely suspicious.

If we look at the initial part of the chart we will immediately realise that such a drop occurred in July as well and soon after that volatility rose sharply in order to achieve its equilibrium point which, in our case, is 0.6% (9% annualised).

The staff of HyperVolatility suggests you not to buy back your short positions because a great deal of volatility is expected in the near future. The current situation is clearly not sustainable in the long run and we believe that the price will tend to “adjust” itself.

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