EUR/USD Futures Volatility Forecast (13/10/2010)

The Euro vs Dollar Futures traded in Chicago provide investors and traders with information regarding the future fluctuation of the EUR/USD spot market.                     The TGARCH volatility chart plots a “curious” development of the conditional standard deviation. Clearly, the average volatility experienced by this market is around 0.6% and it remained stable over the last 5 months although in June there was a sharp drop which happened to coincide with the lowest value of the Euro against the Dollar (around 1,22). It is important to notice that a decline in volatility estimation should usually drive the market down but this was not the case and such a signal should have been interpreted as a warning. In fact, since then the price dispersion was quite limited within narrow boundaries backing the bulls ,however, a rise in conditional variance is probable to occur. Consequently, a depreciation of the Euro against the Dollar should be expected in the near future.

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