Japanese Yen Futures Volatility Forecast (02/05/2011)

The last week we forecasted a further rise of Japanese Yen futures towards the 123.5 – 124 area and our analysis proved extremely profitable once again. Specifically, futures prices opened at 122.6 dropped to 121.8 but then closed at 123.3 the last Friday.

The actual volatility is 0.64% (10.1% annualised) and the TGARCH plot is displaying an upward sloping curve which could mean that more volatility should be expected in the upcoming trading days.

On the other hand, the actual volatility measurement is quite close to the highest level achieved over the last 5 months implying that a mean reverting process is on its way and that, although the conditional variance is going to slightly rise in the very short term, the volatility will tend to drop and collapse towards the equilibrium point by the end of the next week.

The HyperVolatility team remains moderately bullish on Japanese Yen futures because we believe that the market fluctuations rate could touch the 0.73% area (11.5% in annual terms) and then mean revert towards its balance point which can be identified around the 0.58% zone (9.2% annualised).

Consequently, we will wait for the volatility to collapse before placing our long positions because, despite the fact that the profit target should be around the 124.5 area, we know that a further increase in the price oscillation rate would probably push the market down.

Finally, should be the aforementioned target achieved before the end of the week we would close out our longs because the resistance point place at 125 is quite unlikely to be broken.

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