British Pound Futures Volatility Forecast (23/05/2011)

The last week we “predicted” a market drop that would have dragged futures prices in the 160 160.5 area and effectively the lowest point touched by Pound futures was 161.6 on Thursday. However, the overall week has been primarily a sideways one, although we thought the lateral movement would have characterised only the first half of the week.

The market opened at 162 plummeted to 161.6 but it then jumped back up again to 162.3 creating a lateral movement which boxed the price action in a narrow range for the entire week.

The actual volatility is 0.53% (8.4% annualised) but the TGARCH curve is now evidently downward sloping although the drop in the conditional variance could have been caused by the lateral movement of British Pound futures.

The depreciation of the US dollar should now find a bit of support and continue moving sideways even during the next trading days whilst the volatility is probably going to decrease and mean revert towards the equilibrium point which is 0.48% – 0.5% (7.6% – 7.9% in annual terms).

The HyperVolatility team remains bearish in the long run but we will probably not place any trade during the next week because the market is quite likely to move sideways with a potential drop in the 161 area which could happen in the second half of the week.

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