GAFNN.com Blog

British Pound futures began a very bullish week by jumping to 164.5 on Tuesday, in fact the last week we forecasted an up move, but the great uncertainty brought by negative macroeconomics news provoked the US dollar to appreciate against all the major currencies. Particularly, as soon as equity indices began to drop British Pound futures touched 163.9 on Wednesday and closed at 162.2 on Friday                 

The volatility curve is now at 0.46% (7.3% annualised) and its slope seems suggesting a further augment of the conditional variance over the next trading days although the current reading are still within a fairly stable range since a breakthrough of the 0.52% threshold (8.25% in annual terms) did not occur.

The last week we “predicted” a market drop that would have dragged futures prices in the 160 160.5 area and effectively the lowest point touched by Pound futures was 161.6 on Thursday. However, the overall week has been primarily a sideways one, although we thought the lateral movement would have characterised only the first half of the week.

 

The market opened at 162 plummeted to 161.6 but it then jumped back up again to 162.3 creating a lateral movement which boxed the price action in a narrow range for the entire week.

Once again our forecast proved extremely profitable and quite accurate. In fact, the British Pound collapsed throughout the last week, as expected, whilst the volatility rose and achieved the 0.55% (8.7% annualised) which is exactly the figure we gave you 1 week ago.

    

In practical terms the market opened at 163.8 dropped at 163.4 on Wednesday but the down move continued at a stable rate because162.8 was the closing price on Thursday whilst it touched 161.7 on Friday.

The HyperVolatility team was waiting for a good opportunity to place a long position but as we suggested the last week without a clear sign of price recovery we would not enter the market.          

Effectively, British Pound futures went through a quite choppy week because the market opened at 163.2 dropped to 162.5 but closed at 162.8 on Friday whilst the volatility increased to 0.58% and then plummeted to 0.54%(9.2% and 8.5% respectively) as we correctly anticipated the last week.

British Pound futures unexpectedly rose during the last week. In fact, the market opened at 161.13, stabilised around 163 and closed at 163.78 whilst the volatility dropped dramatically to 0.48 (7.6% annualised).

The TGARCH curve is now 0.54% (8.5% in annual terms) and the plot seems suggesting an ulterior increase of the conditional variance in the short term.   

As a consequence, British Pound futures could temporarily drop to 163 whilst volatility should achieve 0.56 - 0.58% (8.8% - 9.2% annualised) but once achieved this level the conditional variance should plummet once again bringing futures prices towards 164 - 164.2 by the end of the week.

The last week we were bullish on British Pound but given the delicate macroeconomics scenario we warned that a sharp drop in volatility would have obligated us to reverse our positions. Specifically, we stated that if the TGARCH curve had touched the 0.58% - 0.6% zone the market would have plummeted and effectively so it was.

The down movement of Pound futures is simply a reflection of the strengthening of the US dollar against the British currency which topped at 163.5 (a 5 months high) before collapsing to 160.2 by the last Friday.