Euro Futures Volatility Forecast (06/06/2011)

The last week we were expecting an ulterior rise of Euro futures and effectively so it was. Specifically, futures opened at 1,4274 rose to 1.4328 on Wednesday, jumped to 1.4489 on Thursday and closed at 1.4633 on Friday.

The current volatility is 0.59% (9.3% in annualised terms) and the TGARCH curve is evidently falling although the massive rally which brought the single currency to heavily appreciate against the US dollar even if the critical and renewed attention of financial media on Greece’s sovereign debt.

The great drop of the conditional variance is clearly signalling a fairly robust condition of the price action and it is reasonable to believe that the mean reverting process of the oscillation rate will keep going on and eventually settle around 0.4% (6.3% annualised).

In other words, the depreciation of the US dollar against the Euro should continue, at least over the next trading days, and the exchange rate, backed by a diminishing volatility curve, could potentially achieve the 1.4780 – 1.4850 area by the next Friday.

The HyperVolatility team remains bullish on Euro futures, although the increasing concerns on Greece’s new bailout plan, because many investors and traders seem willing to push prices in the 1.50 area in the medium term.

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