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Japanese Yen Futures Volatility Forecast (02/08/2011)

The Japanese Yen opened at 127.7 on Monday, touched 128.3 on Tuesday, settled around 128.2 on Wednesday, moved to 128.6 on Thursday and closed at 130.1 on Friday.

The actual volatility is 0.52% (8.2% annualised) and the TGARCH plot is clearly displaying a fairly calm volatility curve, with some very short term augments of the conditional variance, which is now trading within its equilibrium level which is set at 0.5% (7.9% in annual terms).

Furthermore, the price is now trading very closely to the 130 resistance point but, as we anticipated the last week, this is an unknown territory because Japanese Yen futures never managed to break through this price in the last 2 years.

The Japanese Yen futures market has been used by many investors to diversify their portfolio risk whilst earning some small but constant returns in the long term and that’s why we witnessed to a quite steady uptrend over the last 3-4 months. The big question is: is this trend going to last forever?

The HyperVolatility team is bearish Japanese Yen futures because the extremely low volatility environment, which should explode in the short term, and the closeness to a key resistance point are factors that will push the price down back in the 126.8 – 127 area by Friday.

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