Japanese Yen Futures Volatility Forecast (21/06/2011)

The last week we forecasted a further rise in Japanese Yen futures prices and effectively so it was even if the price did not augment as much as we thought. Specifically, the market opened at 124.6, it dropped to 123.5 on Wednesday but it rose to 124.1 on Thursday and it touched 125 on Friday.

The current volatility is 0.54% (8.5% annualised) and the TGARCH plot is showing a slightly upward sloping curve which seems to suggest that more volatility should be expected in the upcoming hours.

However, the conditional variance is still trading within its equilibrium point and this should be comforting news but the fact that the volatility increased, although minimally, together with a rise of the futures prices could be interpreted as a warning signal.

On the other hand, the main trend for Japanese Yen futures remains bullish and even a sensible augment of the oscillation rate should only provoke some short term retracement of the price which could probably drag futures back in the 124 area but only for a few hours.

The HyperVolatility team remains bullish on this market because the fairly stable volatility plot signals that the depreciation of the US dollar against the Japanese currency is not over yet and it is likely to continue over the next days, although the movement should be quite week.

Specifically, futures prices should rise and achieve 125.3 – 125.5 and then move sideways for a while because we are quite close to a 1 year highs and it is likely that many traders and investors placed profit target and stop losses above this level.

We will place some long position as soon as the market is going to open but should the volatility jump and surpass the 0.61% (9.6% in annual terms) we will start looking for opportunities on the short side of the market.

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