British Pound Futures Volatility Forecast (27/03/2011)

The last week we were bullish on British Pound but given the delicate macroeconomics scenario we warned that a sharp drop in volatility would have obligated us to reverse our positions. Specifically, we stated that if the TGARCH curve had touched the 0.58% – 0.6% zone the market would have plummeted and effectively so it was.

The down movement of Pound futures is simply a reflection of the strengthening of the US dollar against the British currency which topped at 163.5 (a 5 months high) before collapsing to 160.2 by the last Friday.

The current volatility is 0.55% (8.7% annualised) but the curve is now upward sloping and it is probable that the TGARCH curve is going to achieve 0.6% – 0.61% (9.5% – 9.6% in annual terms) by the end of the next week dragging down the price in the 159 area.

However, once the volatility has reached its equilibrium point British Pound futures should move sideways and consequently should this target be achieved before the end of the week we would probably see a trading within a narrow range.

The staff of HyperVolatility is moderately bearish on Pound futures and we will place some short positions as soon as the market opens. However, when the volatility will begin declining we will probably close out our trades and bank the profits.

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