The Bank of Japan surprised markets by cutting interest rates to a target range of 0%-0.1% and announcing that they have set aside $60 billion to fund a programme to buy government bonds and other assets (Q.E.). The USD/JPY has seen volatile trade since the announcement.

Thoughts from the trading floor

The USD/JPY is currently trading around the 83.00 handle. From a technical perspective, the market is continuing its recent trend having rejected prices at the 86.00 handle. Furthermore, the market has now failed twice in the last 2 days to regain the 84.00 handle, which is pertinent given the bearish Yen announcement overnight. A further break below the 83.00 handle should eventually see multi-decade lows around 80.00. However the backdrop of even further Japanese intervention looms large and bulls will hope the 83.00 handle can provide firm psychological support as participants fear getting caught short the cross around these levels.

From a short-term perspective, the news announcement overnight should have been sharply bearish for the Yen (bullish for USD/JPY). However, the market failed around the 84.00 handle and now trades around the levels seen yesterday. This would certainly worry bulls as the news overnight can be considered as an intervention on the currency. However the failure of this intervention to have any decisive impact on the market makes it increasingly likely that we will see a break below the 82.80-83.00 area. Importantly, traders may be looking for the BOJ to intervene in the currency market tonight if the cross remains at or below the current levels otherwise they may become unnerved by the sharp intraday rejection seen so far. We saw a similar pattern during the months of Swiss National Bank interventions, where a sharp rejection of interventions resulted in an extended rally in the Swiss Franc whenever the market returned to pre-intervention levels and the SNB did not step in that day or the next day.

Bull View

The bulls will look for the market to stabilise around the current levels before the market can stage a firmer bounce. They will need a firm close above the 86.00 before they can hope to build on any gains should the market get there. Short-term bulls will also be entering the market around current levels looking for the BOJ to intervene again. However they will be nervous that last night’s news could not sustain a move above the 84.00 handle.

Bear View

The bears will look at the interventions by the Japanese authorities as a selling opportunity. If bears can get the market through the 83.00 level, we may see some real panic in the markets and from the Japanese government.

Futex View

We favour the long-term bears. If market cannot return to above the 84.00 handle by tomorrow, and the BOJ do not intervene again very soon, we will look to be sell.

The Crude Oil Market crept higher last week. NYMEX Crude Light futures remained positive on the week but climbed at a moderate pace. The market again tracked equities higher amid a quiet data week.

Thoughts from the trading floor

From a technical perspective, the market broke to the upside, touching $77.17 highs. Bulls will be happy progressing in the right direction but the market does appear to be putting up a dogged resistance to the up-trend. This has led to fierce retracement of many intra-day rallies, showing sellers are not willing to give up ground easily. Bulls will be targeting $78.05. A break off here will snap the defence of many short positions and could very well lead to a firm drive towards  $79.38 and possibly $80.50. Sellers have not given up yet and a key break down of support at $75.60 will tip momentum back into their hands. They will be looking to trial $74.52 and potentially a wider objective of $72.63. In the longer view, the daily chart posture seems to be setting itself up for a possible bearish flag formation, with the potential of a strong downside break - characteristic of previous sell-offs this year.

Last night the American Petroleum Institute reported that US oil inventories posted a large drop of -2415k barrels last week. This compares to the analyst estimate for the DOE number of 970K barrels. The API gasoline rose 3018K, as similar to the estimate for the DOE number of 1590K. With such a convergence between the DOE estimates and the API number, we anticipate that a larger the expected negative number will shock the market given the recent surplus in oil and gasoline levels.

The IEA this week have announced that it has cut its Oil demand for 2011 by 50,000 bpd, as fuel consumption will be a lot lower then 2010 if the global economy slows further. On the supply front, the IEA highlighted the currently high oil stocks in developed countries, with stockpiles being more then enough to match current demand.

Bull View

Bulls will hope their determination to push higher, will press the market to test $78.05. This level marks key resistance and a break above here will open the floodgates to higher ground.

Bear View

Bears have struggled to hold ground this week. They will be hoping to constrain further up moves and be keeping a close eye on the potential formation of a daily bear flag.

Futex View

We are at present still bearish and will be selling rallies. However, being very aware of the changing market conditions and the possible upsurge, we will be cautious of adverse moves against us.

The last 3 weeks has seen COMEX Copper market trend higher. The drive higher has been largely lead by the return of risk appetite in the markets and a broad based sell-off of the USD.

Thoughts from the trading floor

The technical outlook for the market has become somewhat neutral with a slight short-term bullish bias. The market has continued to show some immediate term strength and has now reached a critical resistance area around the $328.10-$330.00 mark. A firm break above here would be the catalyst for an extended run higher to the $350.00 handle. The market formed a stabilising base around the 287.00-292.00 area and a break of this supporting base followed by a firm close below the $280.00 handle would be the required for another firm leg lower, providing bears with an ideal opportunity to take a position ahead of the yearly lows at $274.00. A break below here should push the market into a medium term bearish trend.

Quite noticeably, the copper market has remained resilient to the volatility in risk markets since May. The market is well known as being the leader of macro-fundamental trends. The continued short-term strength of the market would therefore suggest that risk has somewhat bottomed out in the short-term. However, with it being so close to a key short to medium term resistance area, a turn lower may serve to catalyse a broad based sell-off in risk assets across the board and thus provide further impetus to a move lower. The USD has also reached a key short to medium term support level and thus, as we saw from the turn off the recent lows in the copper, a renewal of the medium term uptrend in the USD should also coincide with a turn in the copper.

Interestingly we have also seen the recent trend of the USD underperforming low yielding currencies vs. the high yielding currencies confirmed as a new market flow. This would suggest that perhaps the move lower against the low yielders is a fairly temporary phenomenon as participants remain quite cautious in assuming risk and the moves in the low yielders is a bout of capitulation of long USD positions. This would support the idea that a quick turn-around of the USD would have a strong negative effect on the industrial metals markets.

Bull View

The bulls will be hoping that the short-term resilience shown over the last 2/3 weeks can continue and a continued affinity for risk trades across other risk asset classes will be enough to see the market steadily grind higher. They will cite that the short-term technical picture favours their view and look for a break and close above the $328.10-330.00 level to cement a medium term upward trend.

Bear View

The bears will see the market around a potential turning point. A confirmation of a turn-around in the Copper and USD may be required if bears are looking to re-establish control of the market.

Futex View

We have turned short-term bearish this week. With both the USD and copper around key medium term levels, we see a potential for a high impact short-position in the copper with a relatively tight stop above the $330.00 handle.

Last week the S&P 500 achieved its strongest week of gains in 12 months as bulls returned to the party ahead of Q2 earnings season that begins in earnest this week. This week earning releases from several large blue chips including JP Morgan and General Electric will be in focus as well as the latest US Retail Sales figures.

Thoughts from the trading floor

From a technical perspective last week was very good for bulls as the S&P 500 future broke back above several key resistance levels. Crucially the market rose back above the neckline (1035.00) of the large potential head and shoulders formation and in doing so also cleared resistance at 1036.75. This move now invalidates the technical formation and returns the market to its previous trading range between 1030.00 and 1130.00. To the upside further resistance lies at 1091.00, a breach of here would provide an opportunity to challenge June highs at 1129.50. For now it is fair to say the market is in balance and despite the recent strong performance bulls still remain under pressure as long as we are trading below 1129.50

This week Q2 earnings season begins and is kicked off by Alcoa which most analysts expect to see move from loss to profit. On Thursday we will see the first of the banks report in the form of JP Morgan. Many analysts have been downgrading their expectations for results out of the financial sector, as a result of this increased uncertainty we expect the markets to react strongly to any surprises. On Friday we see more financials report with BOA and Citigroup as well as the bellwether stock GE. Often the markets are very quick to judge how the earnings season will go by the early releases, so expect volatile market conditions if we see a large shocks this week.

Over the next 10 days traders will be looking out for further clues as to the stress test results of European banks. This represents Europe's latest attempts to convince the markets that all is well in the Eurozone and as a result we expect all banks to pass. However this will not prevent rumors circulating this week regarding the results ahead of the release next Friday.

Finally we expect US Advanced Retail Sales to garnish a lot of attention this week after the recent downturn in fundamental data. Any surprise here, particularly to the downside, would likely see a large market reaction.

Important events this week.

• Tuesday: ZEW Survey (Ger)
• Wednesday: Advanced Retail Sales (US), FOMC Minutes
• Thursday: Initial Jobless, PPI, Phili Fed (US); JP Morgan Google earnings
• Friday: CPI, Michigan Survey (US); Citigroup, BOA, GE earnings

Bull View

Bulls will be very pleased that the large head and shoulders formation has been invalidated and will look to build on last weeks gains. Their medium term target should be a test of resistance at 1129.50 in the S&P.

Bear View

Last week gave equity bears a reality check, however they are still very much in the ascendency. Patience may be required this week as recently earnings have resulted in a short term bullish trend.

Futex View

We remain bearish equities in the medium term but expect to see some resilience over the next couple of weeks as earnings are released. The elevated level of Bund and Gold continues to point towards the uncertainty that remains in world markets.