Euro Futures Volatility Forecast (14/08/2011)

The futures on the Euro-Dollar have been trading in a very narrow range despite the high volatility and wild swings that other markets experienced over the last 5 trading days. In fact, Euro futures opened at 1.4177 on Monday, rose to 1.4365 on Tuesday, dropped to 1.4185, achieved 1.4217 on Thursday and closed at 1.4247 on Friday.

Euro futures, unlike other markets, did not experience aggressive movements , and therefore violent price swings, which would have otherwise sent the volatility through the roof.

The current volatility is 0.72% (11.4% in annual terms) and the TGARCH plot is clearly showing a curve which is neither upward nor downward sloping. The conditional variance is now trading close to its long term average, that is between 0.68% – 0.7% (10.7% – 11.1% annualised), and apparently there are no signs of any imminent explosion of futures prices in the near term.

The US dollar should depreciate, at least in the short term, against the Single currency and the really low fluctuations rate, if compared to other markets, is a warning signal that should not be ignored.

The HyperVolatility team is bullish Euro futures because the volatility should increase along with the price, in an inverted leverage effect process, which should push futures back in the 1.4400 – 1.4500 by Friday.

However, a great deal of attention is needed for this market since investors do not trust neither the US dollar nor the Euro because, given the situation of the economy in both the States and Europe, it would be like choosing to get hit with a big stone or a hammer.

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