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Japanese Yen Futures Volatility Forecast (15/05/2011)

The last week we were expecting Japanese Yen futures to drop and touch the 122.5 – 123 area and effectively so it was. The market opened at 124.6 dropped to 123.5 and closed at 123.6 on Friday.

The actual volatility is around 0.53% (8.4% annualised) but the plot is now displaying a fairly stable curve which could potentially rise over the upcoming days although it is trading within its equilibrium point.

On the other hand, the fact that the drop was not accompanied by an increase in volatility is clearly a warning signal that should be carefully interpreted. Specifically, the appreciation of the US dollar against the Japanese currency will continue over the next hours and therefore the down trend should remain fairly constant.

The HyperVolatility team is moderately bearish on Japanese Yen futures because the volatility should rise once again over the next few hours dragging the market back down in the 122 – 122.5 area. We will try to place some shorts as soon as the conditional variance is going to augment and surpass 0.6% (9.5% in annual terms).

However, should the variance remain stable at current levels we would probably step aside and monitor the market waiting for the next opportunity because the uncertainty is still the predominant feeling amongst investors and some wild fluctuations could easily wipe out the profit accrued so far.

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