[DanRath]

As expected, Bernanke’s testimony on QE exit strategies mirrored his WSJ article, but the bond market rallied on his remarks about weak job markets and the need for fiscal responsibility. Lower Treasury yields sparked selling of USDJPY and cross-JPY initially, but risk taking has resumed quickly as there seems little chance that the major Central Banks will move to tighten any time soon. US corporate earnings news continues to be broadly positive, with positive surprises outweighing negatives by more than 3 to 1; against this likely rosy background there will be risk from USD jobless claims tomorrow which might confirm Bernanke’s views and lead to even lower yields; market also flag the German Ifo on Friday as a potential negative for the global recovery.

USDJPY remains in a 93-95 range, with risk appetite supporting the downside, and exporters capping the top. However current sentiment suggests a test of 95 over the coming days; a break could see a new 95-99 trading range, but some remain cautious on the outlook for the global economic recovery and medium term favour further JPY strength..

[DanRath]

Bernanke’s overnight testimony was broadly as expected, stressing that the Fed has a range of tools to smooth the exit QE, but that such a move would not be necessary for some extended period. However markets reacted to his remarks about weak job markets and the need for fiscal responsibility and the resulting rally in Treasuries led to some early cross-JPY selling this morning. Once done however risk taking resumed quickly as Bernanke’s testimony, the RBA minutes yesterday and generally subdued inflation figures globally suggest there is little chance that the major Central Banks will move to tighten any time soon. Against the broadly positive risk sentiment that favours EURJPY higher, the Ifo on Friday remains key. A benign set of figures will likely see EURJPY break higher through 135, but there is a possibility that Ifo will come in weak following the disappointing reading of other leading indicators in Germany – in that case a test of 130 would be more likely.