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E-Mini Crude Oil Futures Volatility Forecast (06/06/2011)

The last week we were bullish E-Mini Crude Oil Futures and we were only partially right because after a powerful rally the market retraced and moved laterally for the remaining days: a very quiet week.

Specifically, the market opened at $ 100.2 rose to $ 102.6 but it then dropped back to $ 99.9 on Wednesday whilst it remained almost constant around $ 100. 5 – 100.6 on both Thursday and Friday.

The actual volatility is 2% (31.9% in annual terms) and the TGARCH curve is clearly downward sloping highlighting that the mean reverting process is not over yet and that an even lower rate of market volatility should be expected over the next trading days.

Specifically, the conditional variance is likely to retest the 1.5% threshold (23.9% annualised) which is the long term equilibrium point and then jump back up again although it should then move sideways for the rest of the week.

The HyperVolatility team is moderately bearish on E-Mini Crude Oil futures but the plunge should be minimal because we think the week is going to be quite again and we expect the price to touch $ 98 – 100 and then move laterally until the next Friday.

However, an unexpected sharp depreciation of the US dollar could cause futures prices to move higher and therefore it is logical to constantly monitor the volatility of the Euro against the US dollar.

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