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Japanese Yen Futures Volatility Forecast (06/06/2011)

The Japanese Yen after an attempt to break through the 122.5 has been pushed back in the 124.5 area because of the great uncertainty caused by macroeconomics news. Particularly, the market opened at 123.5 dropped to 122.6 but it rose to 12.5 on Thursday and closed at 124.6 on Friday.

The actual volatility is 0.6% (9.5%annualised) and the TGARCH curve seems highlighting a further drop of the conditional variance over the next trading hours.

The last week has been extremely intense in terms of news and panic has been the predominant feeling amongst investors and traders. Consequently, many market participants decided to reconsider their portfolio choice and abandon well recognised markets (where anxiety and fear run much faster) in order to prefer asset classes which would offer more security, at least in the short term.

The volatility of the Japanese Yen futures increased during the beginning of the week but it subsequently began to drop as soon as the recovery commenced implying that many investors still believe that this market has got more to offer.

The mean reverting process of the curve is likely to continue over the next trading days and the TGARCH curve will tend to settle around the 0.5% – 0.53% area (7.9% – 8.4% in annual terms).

The HyperVolatility team is bullish Japanese Yen futures because the reverting process of the conditional variance should bring the price in the 125.8 – 126.5 area by the next Friday.

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