Bernanke Boogieman Frightens Dollar Longs

The only thing more anticipated than Ben Bernanke's testimony on Wednesday is the birth of the Royal baby. Dollar longs raced to the exits on fears of a repeat of last week's rout. Ahead of the testimony the BOJ and BOE publish meeting minutes.

The Australian dollar led the rout on the USD Tuesday, steadily climbing to 0.9250 from 0.9100 at the start of the day. It was a similar dollar slide elsewhere and for no compelling reason, except to reduce positions ahead of the testimony.

The dollar momentarily jerked higher following CPI numbers. Prices rose 1.8% y/y compared to 1.6% expected but even the hawks at the Fed aren't concerned. FOMC dissenter Esther George said her opposition to QE is because of financial risks and said inflation appears 'moderate'.

George's comments also presented a mystery. The FOMC minutes said 'about half' of the committee wanted to end asset purchases by year end but George – supposedly the most hawkish member – said she wants them to end in the first half of 2014.

George was upbeat on the jobs market but one area of the US economy showing undoubted signs of strength is housing. The NAHB builder sentiment survey jumped to 57 compared to 52 expected – the highest reading since 2006.

Given the moves Tuesday, the market is primed for dovish commentary from Bernanke. What's becoming increasingly clear is that Bernanke is fighting against the hawks who want to taper QE. If he speaks for the FOMC, expect a more hawkish tilt; if he speaks for himself, look for a dovish tilt. Either way, the confusion in the market is likely to lead to a large move.

At 1950 GMT, the minutes of the June 10-11 BOJ meeting will be released. Note that these are not the minutes of the most-recent meeting, which took place last week. Afterwards, markets will quiet for several hours in anticipation of the BOE minutes at 0430 GMT.