Bernanke Crushes USD, Gold Hits Record

QE3 is officially on the table. Bernanke testified that the Fed is prepared to take additional action if economic growth threatens to stall. The comments sent the USD spiralling and gold to a record. The upcoming session features New Zealand GDP.

Bernanke touched on further asset purchases as one of several options but ANY FURTHER STIMULUS WILL BE DOLLAR NEGATIVE. "We have to keep all the options on the table. We don't know where the economy is going to go," he said -- a comment that certainly doesn't inspire confidence.

The dollar was easily the G10 laggard and fell by more than 1% on several crosses. NZD, AUD and CHF were the best performers. This is traditionally an odd pairing of top performers but has become increasingly normal due to the stability and growth prospects of the threesome.

The euro rebounded alongside Italian bonds. As we warned, the situation in Italy is not on the same level as Greece or other periphery nations.

The S&P 500 closed up 4 points to 1317 after rising more than 1% earlier in the session. Brinksmanship on US debt ceiling talks further weighed on sentiment late in the day. House Speaker Boehner said it's a "crapshoot" that the debt limit will be increased if there is no agreement by Aug. 2.

The confluence of problems in Europe, Japan and the US have once again made left investors scrambling for a safe investment. And once again, they turned to gold and the Swiss franc.

Gold rallied for the seventh consecutive session to a record $1585/oz. Silver climbed 7% and looks as though THE BULLS HAVE REAWAKENED. Virtually every commodity in the CRB Index gained.

There is some talk the SNB could intervene to bring down the franc but we believe it is highly unlikely at the moment. The central bank took a huge loss on past interventions and deflation is not a clear risk.

Asia-Pacific Preview

At 2245 GMT, New Zealand finally releases Q1 GDP after two delays. The q/q reading is expected at +0.3% but the delays and February earthquake have caused speculation that it may be wildly off. In any case, expect the reaction to be limited because we are now two weeks into the third quarter.

At 0500 GMT, the Melborne Institute releases its survey on consumer inflation expecations for the next 12 months. The prior reading was 3.3%. The Bank of Korea has a rate decision at the same time but is widely expected to hold at 3.25% after a hike in June.

Keep an eye on Japanese policy makers as well. The yen lagged on Wednesday after Fin Min Noda said its moves have been "a bit one-sided," which is a threat of intervention.

Moody's Places US on Review for Downgrade

The US dollar is falling once again after a late-day announcement from Moody's that it has placed the US's Aaa rating on review for a downgrade because of the brinksmanship from politicians on raising the debt ceiling.

"Moody's considers the probability of a default on interest payments to be low but no longer to be de minimis. An actual default, regardless of duration, would fundamentally alter Moody's assessment of the timeliness of future payments, and a Aaa rating would likely no longer be appropriate," they said.

The good news is that this may add pressure on Republicans and Democrats to reach a compromise. At the moment, however, progress is virtually nil and the USD will increasingly pay the price with the deadline looming.