Japanese Yen Futures Volatility Forecast (29/05/2011)

The last week we were looking for shorting opportunities even though the price remained almost stable for 3 days and exploded at the end. Specifically, the market opened at 121.9 moved around 122 throughout the entire week and finally rallied to 122.9 on Thursday but closed at 123.6 on Friday.

The actual volatility is 0.58% (9.2% annualised) and the TGARCH curve seems suggesting an increase in the conditional variance which is quite suspicious if we consider that Japanese Yen futures sharply rallied both on Thursday and Friday.

It is important to point out that the variance will probably keep increasing over the next trading days because it has been trading in a very low range for an extended period of time and it has been decreasing for almost 1 consecutive month.

The sharp increase in futures prices has been mainly caused by the depreciation of the US dollar against most of the largely traded currencies in the world and therefore the Japanese Yen futures market has been irremediably affected by such a phenomenon.

The HyperVolatility team remains moderately bearish on Japanese Yen futures because the volatility should augment and eventually touch 0.65% (10.3% annualised) over the next trading hours whilst the price should be dragged back down in the 120.5 – 121 area by the end of the next week.

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