Euro Futures Volatility Forecast (30/08/2011)

Euro futures opened at 1.4358 on Monday, rose to 1.4441 on Tuesday, retraced to 1.4410 on Wednesday, jumped to 1.4376 on Thursday and closed at 1.4491 on Friday.

The actual volatility is 0.71% (11.2% in annual terms) and the TGARCH plot is displaying a stable volatility curve, although sensibly upward sloping, which seems suggesting that in the upcoming hours the market should not experience big jumps or sudden volatility bursts. Clearly, there could be some short term retracements but, even in this market, the mean reverting process tends to be very quick and powerful implying that all “odd moves” are likely to get averaged out.

The HyperVolatility is bullish Euro futures because the conditional variance should not augment in the short term and the price action should move upward over the next trading days. Consequently, futures prices should retest the 1.50 threshold by the end of the week although some short term drops are quite likely to occur but their impact should not be significant in the medium term.


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