Euro Futures Volatility Forecast (13/06/2011)

The Single currency has been hit by the heavy appreciation of the greenback that was, in turn, caused by a constant decrease of equity indices. Principally, the market opened at 1.4571, rose to 1.4687 on Tuesday but it retraced to 1.4575 on Wednesday and the down move continued until the end of the week because 1.4504 and 1.435 have been the closing prices on Thursday and Friday respectively.

The actual volatility is 0.7% (11.1% in annual terms) and the TGARCH plot is now displaying a curve which surely increased but is still trading within its equilibrium range which goes from 0.58% to 0.77% ( 9.2% – 12.2% in annual terms).

Furthermore, the very last part of the curve shows a shy decrease of the conditional variance which could be a first indication that the down movement is quite close to an end.

Additionally, it is important to stress once again that the big appreciation of the US dollar against the Euro has been caused by the significant plunge in equity indices which pushed investors to buy dollars and the inverse correlation relationship between the American currency and the S&P500 it is a well know and documented fact.

The HyperVolatility team remains a bit sceptic about this market because the down move could continue during the next hours bringing the market in the 1.4230 area whit volatility readings around 0.74% (11.7% annualised). However, the buying pressure is probably going to reverse the trend and bring the exchange rate back in the 1.4650 zone by the next Friday whilst the conditional variance should touch 0.6% (9.5% in annual terms): sideways week ahead!!!

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