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DJ EuroStoxx50 Futures Volatility Forecast (08/08/2011)

The European Index sharply plummeted over the last trading days because the concerns about the stability of Europe have been added to the slow growth of the US economy. DJ EuroStoxx50 futures opened at 2,600 on Monday, dropped to 2,511 on Tuesday, settled at 2,520 on Wednesday, plummeted to 2,359 on Thursday and closed at 2,420 on Friday.

The current volatility is 2.9% (46% in annual terms) and, even in this case, the TGARCH plot is displaying an extremely high volatility curve which does not have any sign of retracement and that visibly represents the magnitude of the drop which hit futures prices. Moreover, it is worth pointing out that the same volatility level was achieved in April-May this year when DJ EuroStoxx50 futures dropped 200 points (from 2,980 to 2,780).

The US downgrade along with Italy and Spain’s skyrocketing yields are bad enough news to keep the bearish sentiment up. Furthermore, the volatility, although very high, does not show any sign of weakness or retracement meaning that it will probably keep rising over the next hours.

The HyperVolatility team is very bearish DJ EuroStoxx50 futures and the price is likely to retest the 2,200 points by Friday.

Investors are well aware that small economies such as Portugal, Ireland or Greece can be bailed out but a default of Spain and Italy on their debts would lead to a financial catastrophe because Germany (which paid the largest amount of money so far) can’t afford to rescue such big economies.

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