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Euro Futures Volatility Forecast (23/05/2011)

Euro futures went through a sideways week like many other markets during the last 5 trading days. Specifically, the price opened at 1.4167 rose to 1.43 on Thursday but it sharply dropped to 1.4156 on Friday.

The actual volatility is 0.63% (9.9% annualised) but the TGARCH plot is now displaying a decreasing volatility curve which highlights a great divergence between market fluctuations and the significant drop of the price which brought the market to close to 1.415 on Friday.

The volatility should decrease and touch the 0.61% support (9.6% annualised) but the down movement should not be over yet and the oscillation rate should augment once again over the next hours and retest the 0.75% area (11.9% in annual terms). In particular, the plunge in the conditional variance has been mainly caused by the lateral movement of the price action and does not really signal that bears have lost their control.

The HyperVolatility team remains bearish on Euro futures because the last week did not provide useful information about price direction since the uncertainty has been the predominant feelings amongst investors and traders.

Furthermore, we believe that the scenario did not change much from the last week and that the augment in volatility will drag futures prices back into the 1.400 – 1.405 zone by the end of the next Friday.

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