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Euro Futures Volatility Forecast (21/06/2011)

The sideways week we forecasted one week ago showed only the first half of the movement because the drop we “predicted” towards the 1.4230 area effectively happened but the recovery of the price was not as powerful as we thought. Specifically, the market opened at 1.4295 dropped to 1.4143 on Wednesday, it touched 1.4156 on Thursday and it closed at 1.4268 on Friday.

The current volatility is 0.78% (12.3% annualised) and the TGARCH plot is now displaying a curve which is about to mean revert and collapse towards the equilibrium point which is stable around the 0.6% level (9.5% in annual terms).

The main trend is clearly still bullish and the fairly stable volatility plot is just a mirror which highlights the great steadiness of the price action. The US dollar should keep depreciating against the Euro but the renewed concerns about Greece’s sovereign debt should push away some investors from this market and “convince” the remaining ones to re-size their positions.

The volatility will collapse over the next trading days but once the curve will have reached its status quo level a sideways movement of the price is an eventuality not to opt out.

The HyperVolatility team remains moderately bullish on Euro futures because the drop in volatility should favour a recovery of the price action but the Greece’s problems could have a negative effect in terms of buying pressure, nevertheless futures prices should retest the 1.445 – 1.45 area by Friday.

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