A quiet session as the markets await the FED chairman's Congressional testimony. The minutes of the BOJ's June 10-11 monetary policy meeting were released and, as expected, were devoid of any surprises. Before we get to Bernanke, the markets may get an idea of how the BOE's new chief, Carney, voted when the MPC Official Bank Rate Votes are released.
The recent US Dollar weakness is probably symptomatic of the fact that traders have been positioning themselves ahead of Bernanke's testimony. It is not a stretch to assume that speculative long positions had been built up to very high levels on the belief that the FED would commence tapering their asset purchase program, probably as soon as September of this year.
The FED chairman appeared to be confirming this when he made his comments on June 19, after the last FOMC meeting. Which is why his comments on July 10, when he seemed to be backtracking from those earlier statements, roiled the markets to the degree that they did. With this much uncertainty, it quite understandable that the markets are approaching his upcoming Congressional testimony with more than a bit of trepidation and this is probably being borne out in the performance of the US unit.
The testimony will be released 90 minutes prior to his live appearance before Congress and it would be highly unusual for that to reveal anything new. It's when he starts to field questions that things could get quite interesting as he might be forced into making the kind of statements that have, in the past, generated a lot of volatility.
The price action suggests that the markets are lending more credence to his July 10 comments and are wary that he will reiterate his stance about "pushing back" if bond yields resume their aggressive move higher. If he does indeed adopt an overly dovish tone then the dollar could come under a lot of pressure as the bulls might be forced to capitulate, whereas if he focuses on reasons why the US economy is ready and capable of handling a reduction in stimulus, then the dollar should receive a modest bid.