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British Pound Futures Volatility Forecast (27/06/2011)

British Pound futures opened at 161.8, dropped to 160.4 on Wednesday, decreased to 159.9 on Thursday and settled at 159.4 on Friday. The week was a bearish one whilst we were expecting a short term drop followed by a recovery of the price action but the bad macroeconomics news, once again, which hit the Crude Oil market, made the US dollar appreciate against the most important currencies.

The actual volatility is 0.41% (6.5% in annual terms) and the TGARCH plot is still showing a volatility curve whose slope is clearly upward sloping. In particular, it is quite evident that the conditional variance did not manage to end its mean reverting process and the upcoming days could see the oscillation rate to get back into the 0.50% zone (7.9% annualised) which is the equilibrium point.

The appreciation of the US dollar, caused by ulterior bad news and the drop of the crude oil prices, clearly acted as a catalyst during the plunge because the 160 support has been broken fairly quickly, although futures prices did not move much far from that.

The HyperVolatility team remains moderately bullish British Pound futures because the fact that the volatility is now decreasing is a fairly robust signal that the down move ran out of steam. Additionally, the price is probably going to move sideways for a couple of days but we expect a rally in the 162 – 162.5 area to occur by Friday

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