By Win Thin

Chairman Ben Bernanke's prepared statements for his Senate testimony are pretty dovish, but don't really deviate from recent signals from the Fed. Bernanke reiterated that rates would stay low "for an extended period" and that recent financial market developments are "less supportive" for growth. He added that the Fed is prepared to take further policy actions "as needed." However, he did not specify what those steps might be.

Don't forget that minutes from the June 23 decision to keep rates on hold showed that the Fed did discuss the possibility of further policy stimulus, but only if the outlook were to deteriorate significantly. Other Fed officials have recently signaled that the bar is set quite high for further stimulus measures by the Fed. Reading Bernanke's text, we see nothing that has changed that perception. We await Q&A for more clues.

Stocks have headed south on what appears to be a pessimistic interpretation of the U.S. economic outlook presented by Bernanke, while the dollar is gaining against the euro. With EM currencies weaker (MXN, in particular, has sold off 10-15 big figures), risk off trading is back in play. As such, it looks like the dollar is back to being the beneficiary as risk appetite dries up. Break of the 1.27 area targets the July 13 low around 1.25.
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