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Japanese Yen Futures Volatility Forecast (04/07/2011)

The last week we were bullish Japanese Yen futures and we were expecting the price to retest the 125 area and although our long positions proved profitable and our analysis accurate the market did not rally as much as it was expected to. In fact, the Japanese Yen market opened at 123.7, dropped to 123.3 on Tuesday, rallied to 123.8 on Wednesday, moved to 124.2 on Thursday and settled at 123.8 on Friday.

The actual volatility is 0.55% (8.7% annualised) and the TGARCH plot seems to suggest a further softening of the conditional variance over the next trading days because the volatility curve is neither upward nor downward sloping.

Furthermore, if we exclude the last week rally the market has been largely moving sideways and the 125 psychological resistance is holding extremely well because all the attempts to break through this level have been vanished.

As previously mentioned the volatility should not oscillate wildly over the next hours but a short term of the conditional variance is not an eventuality to pot out because many investors could take advantage of the insecurity surrounding the market and drive the price down.

The HyperVolatility team is moderately bearish Japanese Yen futures market because even a shy augment of the variance could easily drag the price back into the 122.5 – 123 area. However, we are expecting a prolonged sideways movement of the price action and we will enter on the short side of the market solely if the volatility curve will surpass the 0.58% – 0.6% level (9.2% – 9.5% annualised).

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