E-Mini Crude Oil Futures Volatility Forecast (10/07/2011)

E-Mini Crude Oil opened at 94.95 rose to 96.85 on Tuesday, dropped to 96.6 on Wednesday, increased to 98.6 on Thursday and dropped to 96.4 on Friday. We were expecting a sideway move but the price action headed north although the US dollar kept appreciating against the Single currency.

The actual volatility is 1.8% (28.5% annualised) and the TGARCH plot is still displaying a rather robust and “calm” volatility curve which seems suggesting that the next trading hours will see a further flattening of the conditional variance.

Nevertheless, it is worth mentioning that the $ 2 drop caused by Friday’s macroeconomics announcement did not twist the volatility that much and the sharp depreciation of the Euro against the US dollar should have pushed oil prices back down but this was not the case.

Particularly, we all know that when the US dollar strengthens against the Euro the price action should head south to counterbalance the disproportion but this did not occur and such a phenomenon, along with the total absence of volatility despite the remarkable price change, should be interpreted as a warning signal.

The HyperVolatility team remains bearish E-Mini Crude Oil futures because a slight augment in the conditional variance should drag the price back down in the $ 94 – 95 area. However, it is likely that the next week will see a sideways movement of the price followed by a constant decrease with some volatility on Friday.

Also, we remain bearish in the medium term because E-Mini Crude Oil futures should retest the $ 90 threshold in 10 – 15 days time.

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