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Japanese Yen Futures Volatility Forecast (10/07/2011)

The last week we were bearish Japanese Yen futures and 122.5 – 123 area was the profit target we were looking forward to. The market opened at 123.88 dropped to 123.63 on Wednesday and plummeted to 123.18 on Thursday, however, the great volatility which hit Friday’s trading session pushed the price back into the 124.09 zone.

The volatility is now 0.5% (7.9% annualised) and the TGARCH plot is showing a fairly stable curve which is trading close to the long term equilibrium point that is identifiable within the 0.45% – 5% zone (7.1% -7.9% in annual terms).

Japanese Yen futures, on Friday, rose sharply because of the bad job figures reported in the Non Farm Payroll and the consequent increase in the US unemployment pushed many investors away from American stocks, indices and its currency. As a consequence, most of them turned to the Japanese Yen boosting the buying pressure which pushed the price all the way up to 124.

On the other hand, it is worth noting that the violent drop in price which characterised all the week, let alone Friday’s event, did not produce much volatility. The same thing happened on Friday because the very last part of the volatility curve does not show any short term explosion.

The HyperVolatility team is moderately bearish on Japanese Yen futures because the price should retrace and test the 123 support once again over the next trading hours. Nevertheless, the price plummet should not be very powerful because the drop in volatility has been mainly caused by a sideways movement of the price and we think the next week is going to present the same scenario.

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