British Pound Futures Volatility Forecast (24/07/2011)

British Pound futures went through a very bullish week. The market opened at 160.3 on Monday, rallied to 161.1 on Tuesday, moved to 161.4 on Wednesday, jumped to 162.9 on Thursday and closed at 162.8 on Friday.

The current volatility is 0.05% (0.79% in annualised terms; believe it or not) and the TGARCH plot is clearly displaying a massive drop of the conditional variance which has been completely knocked down by the steady rise of futures prices.

Needless to say that, statistically speaking, the probability for the volatility curve to rise in the upcoming days is very close to 99% and such an augment in market fluctuations should end around the 0.4% – 0.45% area (6.3% – 7.1% in annualised terms).

Furthermore, the probable boost in market volatility is likely to push back down British Pound futures which already started to show some signs of weakness in the last 2 trading days.

The HyperVolatility team is bearish this market because the extreme low volatility is a clear warning signal: something in the market has now changed.

British Pound futures are likely to drop over the next trading days, favouring a recovery of the US dollar against Her Majesty’s currency, and it would not be surprising to see the price action to retest the 159 – 159.5 support level by the next Friday.

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