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German Bund Futures Volatility Forecast (02/08/2011)

German Bund futures opened at 128 on Monday, touched 128.4 on Tuesday, rose to 129.2 on Wednesday, achieved 129.5 on Thursday and closed at 130.6 on Friday.

The actual volatility is 0.38% (6% annualised) and the TGARCH plot is manifestly showing a downward sloping curve which seems to have completed its mean reverting process and it is now ready to settle around its long term equilibrium point. Consequently, the chart seems to suggest that the upcoming days will not see an extreme movement of the market but a constant and slow price action.

German Bund futures are still in an uptrend, however, for the market to continue prices should break through the 130 resistance points which extraordinarily strong. In fact, the first time this level was surpassed was during the credit crunch and it took 8 months (from January 2010 until August 2010) to “demolish” the aforementioned threshold.

The HyperVolatility team is bearish German Bund futures because the volatility is very likely to augment in the short term and the 130 resistance should hold, at least in the short term. We are expecting the price action to retrace and eventually touch the 127.5 – 128 area by Friday, macroeconomics news permitting.

On the other hand, bad news regarding the health of the global economy would probably see German Bund futures rally and touch the 132.5 level.

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