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Swiss Franc Futures Volatility Forecast (10/07/2011)

We said we would enter the market solely if the volatility had surpassed the 0.78% level (12.3% annualised) and since the requirement was not satisfied we stepped aside and monitored the conditional variance all week long. Swiss Franc futures opened at 117.9 rose to 118.9 on Tuesday, closed at 119.1 on Wednesday, plummeted to 118.4 on Thursday and settled at 119.5 on Friday.

The current volatility is 0.62% (9.8% in annual terms) and the TGARCH plot is still showing a fairly stable curve which seems suggesting that no wild oscillations of the price action should be expected over the next trading days.

The impact that the Non-Farm Payroll announcement had on Swiss Franc futures was very predictable because when uncertainty hit equity markets many investors and traders turn to the Swiss currency to protect their portfolios and diversify their risk. We repeatedly said, in our previous analysis, that this market is considered to be a kind of safe haven for market participants and the rule proved to be valid once again.

The HyperVolatility team is moderately bullish Swiss Franc futures because the prolonged state of grace of the volatility curve should favour an ulterior rise of the price which is likely to break through the 120 resistance and test the 120.5 level by Friday.

Nevertheless, an augment in the conditional variance should be expected around the 120 level because many bears placed their short entries at this level, hence, the selling pressure could augment. Having said that, it is worth mentioning that should the conditional variance surpass the 0.68% – 0.7% area (10.7% – 11.1% annualised) we will revert our positions and look at the short side of the market.

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