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E-Mini Crude Oil Futures Volatility Forecast (30/08/2011)

E-Mini Crude Oil futures opened at 84.4 on Monday, rose to 86 on Tuesday, dropped back to 85.1 on Wednesday, settled at 84.9 on Thursday and closed at 85.4 on Friday.

The current volatility is 2% (31.7% annualised) and the TGARCH plot is displaying an upward sloping curve which, in normal trading conditions should signal more market fluctuations, but not in the case. The volatility explosion which brought the curve to achieve 0.3% (47.6% in annual terms) did not fully mean revert and it is likely that an initial small augment in the conditional variance, in the first half of the week, will be followed by a drop of the oscillation rate.

The oscillation of the price will highly depend upon the macroeconomics data that are going to be released over the next days and the Manufacturing Index as well as Crude Oil inventories are going to have a significant impact on futures prices.

The HyperVolatility team is bullish E-Mini Crude Oil futures because the volatility should soften and favour a recovery of the price action which could retest the 88.5 – 89 area by Friday.

On the other hand, a great deal of attention will be needed during news announcement because a further negative reading of the manufacturing index could cause an explosion of the conditional variance and a drop in futures prices.

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