Japanese Yen Futures Volatility Forecast (14/08/2011)

The Japanese currency was expected to break through the 130 level on the futures market and effectively so it was even if the 131 resistance was not achieved and the market settled just behind the 130.3 points. In particular, Japanese Yen futures opened at 128.9 on Monday, rose to 130 on Tuesday and moved sideways since then because 130.26, 130.2 and 130.23 have been the closing prices on Wednesday, Thursday and Friday respectively.

The actual volatility is 0.58% (9.2% annualised) and the TGARCH plot is visibly showing a downward sloping curve which has effectively touched its long term equilibrium point; that is 0.52% – 0.53% (8.2% – 8.4% in annual terms).

The Bank of Japan’s big sell-off did not manage to prevent its currency from appreciating, phenomenon that for a country which bases most of its revenues on exports could lead to financial catastrophe, but at least it decreased its growth rate.

Furthermore, most of the panic that we have been seeing in the market is now slowly dissipating and the fact that the volatility dropped significantly is a signal that the situation is about to change.

The HyperVolatility team is bearish Japanese Yen futures because the volatility should augment, at least in the short term, whilst the price should get back to normal and eventually touch the 126.5 level by Friday.

Nevertheless, ulterior bad macroeconomics news could alter and distort the price action once again by pushing Japanese Yen futures above the 131.5 threshold.

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