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British Pound Futures Volatility Forecast (29/05/2011)

British Pound futures went through a sharp recovery which pushed the price in the 164 area. In fact, the market opened at 161.1 settled around 162.7 on Wednesday, rose to 163.8 on Thursday and closed even higher, at 164.8, the last Friday.

The volatility is now 0.43% (6.8% in annual terms) and the TGARCH plot is now showing a downward sloping curve which seems to suggest a further decreasing of the conditional variance over the next trading days.

However, the big rally has been primarily provoked by the great crash of the US dollar against the most important world currencies and such an occurrence obviously pushed Pound futures to retest the 165 area and eventually break through the 166 – 167 zone (the highest level ever achieved in the last 1.5 years).

The volatility should keep decreasing over the next days whilst British Pound futures are probably going to move higher because Her Majesty’s currency will almost certainly appreciate against the greenback. The price will touch the 166 – 167 area whilst the volatility should settle around 0.4% – 0.43% (6.3% – 6.8% annualised).

The HyperVolatility team is bullish British Pound futures and we will place some longs as soon as the market is going to open because the drop in volatility observed over the last days seems to validate the rise in price and the will of traders and investors to speculate against US dollar.

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