E-Mini Crude Oil Futures Volatility Forecast (24/07/2011)

E-Mini Crude Oil futures rose steadily over the last 5 trading days and almost managed to break through one of the most important psychological and macro-economically relevant resistance points: that is $ 100 per barrel. In fact, the market opened at $ 96 on Monday, rallied to $ 98 on Tuesday, kept increasing on Wednesday, when it touched $ 98.4, settled around $ 99.1 on Thursday and closed at $ 99.7 on Friday.

The current volatility is 1.85% (29.3% annualised) and the TGARCH plot is showing a fairly low, downward sloping volatility curve which seems to suggest that the upcoming trading days should not bring an excess of volatility in the market.

However, the robust rise in E-Mini Crude Oil futures has been heavily favoured by the great devaluation of the US dollar against other strong currencies but during the next week investors should face the fact that a short term retracement of the greenbacks is almost certain and the imminence of Crude Oil prices to the $ 100 resistance point could bring some more market fluctuations.

The HyperVolatility team is bearish E-Mini Crude Oil futures because of three reasons:

1) The US dollar should appreciate, at least in the short term, against the Euro

2) E-Mini Crude Oil futures are very close to the $ 100 resistance point which is a very robust psychological point

3) The price kept going up since late June and before going on holiday many investors will probably try to cash in and close out their longs

The price action should keep moving sideways during the first half of the week but a shy boost in the conditional variance, favoured by a decreased volume, could easily bring futures prices back down to $ 98 by the next Friday.

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