Swiss Franc Futures Volatility Forecast (08/08/2011)

Needless to say that the massive sell-off that interested financial markets pushed all investors to seek some sort of safe asset and we know that the Swiss Franc is one of those. In fact, Franc futures opened at 127.7 on Monday, touched 130.7 on Tuesday, plummeted to 130.1 on Wednesday, rose to 130.3 on Thursday and closed at 130.6 on Friday.

The actual volatility is 0.43% (6.8% annualised) and the TGARCH plot is displaying a slightly upward sloping curve, although the conditional variance experienced an aggressive drop due to the sharp buying pressure which hit the Swiss Franc futures.

The volatility should head north in the upcoming days and mean revert towards the 0.6% level (9.5% annualised) but such an increase in the market fluctuation rate should be only a temporary one because many investors, frightened by what happened last week in equity markets, will seek security in the Swiss country.

The Swiss Central bank adopted some drastic measures to depreciate its national currency but the intervention did not meet central bankers’ expectation and since the panic is still high we believe that the situation will remain almost unchanged.

The HyperVolatility team remains bullish Swiss Franc futures, although a short term drop is highly probable in the first half of the week, and we think that futures prices will first plunge to 128.5 – 129 and then retest the 131 area by Friday. Consequently, the volatility will rise in the first 1-2 days of the week and then remain constant or eventually drop back as we approach the weekend.

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