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· USD/JPY bounces off 106.25, focus on Fed minutes, Jackson Hole

USD/JPY bounces off the key support at 106.25 and heads back towards the 106.50 level, in response to downbeat Japanese trade data, risk-on action in the Asian equities and higher Treasury yields. Markets digest US President Trump's trade-negative comments.

Valeria Bednarik, the Chief analyst at FXSreet explained that USD/JPY settled below its weekly high, this one, at around the 38.2% retracement of the 109.31/105.04 decline:

"In the daily chart, technical readings keep the risk skewed to the downside, as the pair develops below bearish moving averages, while technical indicators have lost directional strength, currently consolidating well into negative levels. In the 4 hours chart, a bullish 20 SMA has been leading the latest advance, now providing an immediate support at around 106.20. The Momentum indicator advances above its mid-line, but the RSI is directionless at around 56, indicating that the pair could extend its gains in the short-term, although such advance would likely be limited."

· Fed Chair Jay Powell’s speech at the Jackson Hole Symposium will be the key event of the week for markets. Oftentimes the “clues” about policy U-turns are first offered outside of the official central bank meetings. The inverted yield curve we saw last week is a message from markets to the Fed that short term rates are too high relative to long term inflation expectations. The big questions is “Hey Jerome, are you listening to bond markets?” We’re sure he is listening- but we don’t think Powell will want to be forced into promising stimulus when the US economy is doing well.

Central banks tend to act too late because they are watching lagging hard economic data like CPI, unemployment and GDP growth- rather than market signals like an inverted yield curve. This has been pointed out many times, but there has been an inverted yield curve before the last few US recessions – but not every yield curve inversion led to a recession. Given that the bond market is being unusually distorted by central action overseas- causing unusual phenomena like negative interest rates – it’s even more likely than normal that this yield curve inversion is a false signal. Of course a recession may be just around the corner, after all it has been over a decade since the last US recession. The point is that central bankers will be even less enthusiastic than normal about following a yield curve signal given the bond market distortions.

If Jay Powell doesn’t trust this “flashing light” from bond markets- he will stick his guns about mid-cycle insurance cuts. We think Powell could strongly hint at one more rate cut this year- which might cause an initial jump in risk appetite- but be quickly followed disappointment – causing a risk off move into gold, bonds, the US dollar and out of stocks and other currencies like the euro. Of course, if Powell does cave in to bond markets, gold would likely top out -and given the sharp sell-off in the last two weeks, a rip-roaring rally should ensue in stocks.

· President Donald Trump said Sunday he doesn’t want to do business with Chinese tech giant Huawei, after weekend reports that the administration was planning to extend a reprieve that allows it to buy parts from U.S. companies.

“I don’t want to do business at all because it is a national security threat,” Trump told reporters. “We’ll see what happens. I’m making a decision tomorrow,” he added.

The Wall Street Journal and Reuters reported that the Commerce Department was preparing to extend a license for 90 days which would allow Huawei to continue business with U.S. companies to service existing customers. The current agreement is set to end on Monday.

· China’s announcement of key interest rate reforms over the weekend fueled expectations of an imminent reduction in corporate borrowing costs in the struggling economy, boosting share prices on Monday.