Swiss Franc Futures Volatility Forecast (22/08/2011)

The bearish view we shared one week ago has been partially confirmed because, although the market plummeted in the first half of the week due to the concerns regarding the Swiss Central Bank’s intervention, the bad news coming both from the macroeconomics and political worlds pushed investors to buy back the Swiss currency.

Swiss Franc futures opened at 127.6 on Monday, dropped to 126.2 on Tuesday, jumped to 126.8 on Wednesday, plummeted to 126.1 on Thursday and achieved 127.4 on Friday.

The actual volatility is 1.1% (17.4% annualised) and the TGARCH plot is visibly displaying a curve that is now moving sideways after having touched the 2% threshold (31.7% in annual terms) which is its five months high. Furthermore, the mean reverting process of the conditional variance seems to be somehow interrupted implying that the next trading days could still see a high degree of market fluctuations.

The HyperVolatility team is bearish Swiss Franc futures because the continuing intervention of the Swiss Central Bank and a probable increase in the conditional variance should drive the price action back down in the 125 area by Friday.

On the other hand, bad macroeconomics news and an ulterior drop in equity markets would augment the buying pressure and futures prices would skyrocket and touch the 129 threshold by the end of the next week.

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