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German Bund Futures Volatility Forecast (15/05/2011)

The bearish view we had the last week turned out to be right only in the first half of the week because the last 5 trading days saw a quite choppy price action which then exploded and achieved 124.4 euro on Friday.

The actual volatility is around 0.4% (6.3% in annual terms) and the chart is displaying a very stable curve which seems to have reached its equilibrium level but at this point the uncertainty could become the predominant feeling among investors.

German Bund futures went through a very rough week where most of the fluctuations have been driven by the large swings that commodities market experienced. Particularly, the sharp surge in price that brought the market to touch 124.4 euro has been probably led by many investors and traders seeking a secure place for their capital.

The HyperVolatility team is moderately bullish on the German Bund because we believe that the volatility curve is going to remain stable and therefore futures prices should keep heading north and test the resistance point placed at 124 euro.

Nevertheless, we believe that the next one will be mainly a sideways week and we will enter some longs only if the volatility is going to show the right signal because the more the market goes up the weaker the price action becomes.

The volatility has been quite low for an extended period of time and clearly such a scenario will not last forever.

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