Swiss Franc Futures Volatility Forecast (14/08/2011)

The HyperVolatility team was right once again because the last week we forecasted a break through of the 128.5 – 129 level and the market opened well above that level. Swiss Franc futures opened at 132.64, jumped to 139.03 on Tuesday, retraced to 137.85 on Wednesday, dropped to 131.21 on Thursday and closed at 128.64 on Friday.

The actual volatilty is 1.59% (25.2% annualised) and the TGARCH plot is manifestly displaying an out-of-order situation in which the conditional variance has touched its higest level in 5 months. Moreover, it is clear that the volatility already commenced its mean reverting process but, in this case, we are looking at an inverse leverage effect where a volatility decrease is accompanying a plummeting price rather than an up move.

The intervention of the Swiss Central Bank started to have some effects on its currency futures since Wednesday onwards, however, we believe that most of the investors started to fear this market because it is clearly overbought and its volatility exploded on the upside although the market is in a robust uptrend.

The HyperVolatility team is bearish Swiss Franc futures because the inverse correlation between the price and its volatility will tend to get back to normal only in the medium term implying that an ulterior plunge of market fluctuations is going to go along with a dropping price. We believe that Swiss Franc futures will probably touch the 124 – 124.5 support by Friday.

It is worth adding that even this market is highly exposed to macroeconomics news meaning that further negative figures would push the price back into the 135 – 137 area.

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