Japanese Yen Futures Volatility Forecast (24/04/2011)

Japanese Yen futures were expected to hit the 121.1 -121.8 area and our analysis proved even more profitable than we thought because 122.2 was the closing price. In particular, the market opened at 120.9 rallied to 121.4 and closed at 122.2 on Thursday.

The current volatility is around 0.61% (9.6% annualised) and the curve is still downward sloping meaning that the mean reverting process of the conditional variance is not over yet. Consequently, Japanese Yen futures should move higher because the volatility curve is probably going to collapse and settle around the 0.48% – 0.5% (7.6% – 7.9% in annual terms).

As we said the last week we believe that many investors are looking to bring back the price in the 123.5 – 124 area which is exactly where the exchange rate was before the earthquake destroyed Japan.

The HyperVolatility team remains bullish on Japanese Yen futures and we will try to place some longs as soon as possible because the aforementioned profit target should be achieved by the end of the next week whilst the volatility is going to decrease constantly over the upcoming trading days.

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