Swiss Franc Futures Volatility Forecast (04/07/2011)

The last week we warned our readers against a drop of Swiss franc futures because, in our opinion, the 120 resistance point would have been a too strong psychological level to surpass and effectively so it was. Furthermore, we forecasted that the drop would have been a significant one with the price action ending the week in the 117.5 area and the HyperVolatility team was right once again.

Particularly, Swiss Franc futures dropped throughout all the week. In fact, the market opened at 119.7 on Tuesday, retested the 120 threshold on Tuesday but did not manage to break through it and started to drop until Friday. Specifically, 119.9 was the closing price on Wednesday whilst 119.02 was the settlement on Thursday and 117.9 the Friday’s closing price.

The volatility is now at 0.7% (11.1% annualised) but the TGARCH plot is clearly displaying an extremely flat curve which implies the fact that the price drop we saw the last week was extremely weak. Particularly, such a phenomenon is a warning signal because, as you can see from the chart, the conditional variance did not move at all despite of the big plummet in futures prices.

The HyperVolatility team will probably remain flat this week because the price is likely to move sideways all week long. However, a short term explosion of the volatility could potentially bring futures prices back into the 116 – 116.5 area but we would enter a short position only the conditional variance is going to surpass the 0.78% point (12.3% in annual terms).

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