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Euro Futures Volatility Forecast (22/08/2011)

The forecast we gave you the last week proved very useful and profitable because the 1.4400 target has been successfully achieved by the price action over the last trading days. In fact, Euro futures opened at 1.4434 on Monday, dropped to 1.4401 on Tuesday, jumped to 1.443 on Wednesday, plummeted to 1.4332 on Thursday and closed at 1.4383 on Friday.

The actual volatility is 0.72% (11.4% annualised) and even this week the TGARCH chart is showing a fairly stable curve which seems not to mirror the great instability and uncertainty that is hitting all financial markets worldwide. Moreover, Euro futures volatility is trading within its long term equilibrium point and, even though the curve is upward sloping, there are no signals of any imminent explosion of the conditional variance although some short term increase is not to exclude.

The situation in US is not really comforting whilst the European debt crises is making everybody more and more concerned about the future of the global economy. Consequently, many traders and investors are purposely avoiding this market, which was one of the few not to experience wild fluctuations, because they switched their attention towards more “popular” asset classes.

The HyperVolatility team is moderately bullish this market because there should not be short term explosion of the volatility and the upcoming trading hours should see a sideways movement of the price action followed by a recovery of futures prices which could retest the 1.4500 threshold by Friday.

It is worth noting that ulterior bad news coming from European peripheral countries could trigger a massive sell-off which would irremediably see the US dollar to appreciate against the Single currency whose closing value could touch the 1.4000 zone.

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