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Swiss Franc Futures Volatility Forecast (02/05/2011)

The last week we were bearish Swiss Franc futures but the rally experienced by this market over the last trading days signalled that that the high volatility measurement was nothing but a “fake-head”.

The current volatility is 0.63% (9.9% annualised) and the TGARCH plot is clearly displaying a fairly stable scenario where the conditional variance is fluctuating within a narrow range which coincides with its equilibrium point.

The sharp augment in volatility which is visible in the chart has been counterbalanced by an even more violent mean reverting process which evened out the oscillation rate.

Consequently, the fast retracement of the volatility curve highlights the fact that many investors and traders are still waiting for the market to head north.

The HyperVolatility team is bullish on Swiss Franc futures because the stableness of the volatility plot and the fast mean reverting process of this market are both pointing towards a further up move of the price action.

We will place some longs as soon as possible and we expect the price to hit the 116.8 – 117.5 area by the end of the week because the sharp depreciation of the US dollar will push away investors from the American currency who will instead try to protect their portfolios by going long, once again, Swiss Franc futures.

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