Euro Futures Volatility Forecast (29/05/2011)

The US dollar heavily plummeted over the last week and this phenomenon totally twisted all our analysis. Euro futures opened at $ 1.4046 fluctuated around $ 1.4080 for a couple of days and finally rallied to $ 1.413 on Thursday but even in this case, the final price was much higher than Monday’s opening: 1.4292 was the registered closing price on Friday.

The volatility is now 0.72% (11.4% in annual terms) but the chart is still displaying a downward sloping curve which highlights the fact that the depreciation of the US dollar against the Single Currency is likely to continue.

The conditional variance will tend to decrease over the next week and mean revert in the 0.5% – 0.52% area (7.9% – 8.2% annualised) which has been the equilibrium point for more than 4 months and that is why it is reasonable to believe that the volatility curve will not break through this support.

The Euro will keep appreciating against the American dollar and Euro futures should move higher again.

The HyperVolatility team is bullish this market because the price is going to retest the $ 1. 4400 – $ 1.4500 threshold by the next Friday and the decreasing variance should accompany and sustain the recovery of the price action.

Should the volatility remain constant or plummet we will immediately enter the market.

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