Japanese Yen Futures Volatility Forecast (30/08/2011)

Japanese Yen futures opened at 130.2 on Monday, rose to 130.5 on Tuesday, dropped to 129.9 on Wednesday, plummeted to 129 on Thursday and closed to 130.4 on Friday.

The current volatility is 0.52% (8.2% annualised) and the TGARCH plot is displaying an upward sloping curve which seems suggesting that the upcoming hours could see an increase in the market fluctuations rate. The chart clearly shows that the volatility plummeted, found stability around the 0.5% level (7.9% in annual terms) but never experienced any short term bursts. Consequently, the probability for the oscillation rate to augment are quite high and such a phenomenon could manifest itself in the next hours.

Japanese Yen futures are still trading in an unknown territory because the 130 threshold had never been violated over the last 2 years and the fact that the price action is now moving sideways but the volatility is at historically low levels is a very strong warning signal.

The HyperVolatility team is bearish Japanese Yen futures because the buying pressure should diminish over the next hours causing a rise in the conditional variance which will inevitably drag the price back down in the 127 – 127.5 area by Friday.

However, it is worth pointing out that this week the macroeconomics calendar is quite intense and therefore some worse-than-expected news in the fundamentals could easily “poison” futures prices which could achieve the 132-133 threshold before the end of the week.

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