Bernanke Mentions Option of Tapering – EUR/USD Falls, USD/JPY Leaps

When asked about an exit strategy, Ben Bernanke did release a comment that was certainly enough for dollar bulls.

After an initial slide, the dollar is now marching forward.

Bernanke said that the Federal Reserve could scale down QE “within the next few meetings”. Of course, Bernanke did condition this on an improvement in the labor market.

Updates:

• EUR/USD struggling with 1.2880.
• AUD/USD fell to new lows: it was also pressured by Bernanke and this snowballed: the pair lost the 0.97 line and approaches low support.
• GBP/USD is falling quickly and is trading at 1.5050.
• USD/CHF temporarily crossed 0.98.
• USD/CAD reached 1.0340 before bouncing. Update: it peaked at 1.0385, a nearly one year high.

EUR/USD is down to 1.2910, a 90 pip whipsaw so far. Update: it fell under 1.29 before recovring back above 1.29, but still under the pre-Bernanke levels. USD/JPY jumped higher, breaking the 103.30 peak seen last week and reached a high of 103.60 – a new multi year high. The pair holds above 103.34.

In the prepared statement, Bernanke didn’t talk about tapering. On the contrary, he said it would be premature to withdraw stimulus and hurt the recovery.

This pushed the dollar lower, but it didn’t go too far. Why? First, this was mostly expected after previous Fed speakers were very cautious. The second reason, is that the market is basically dollar bullish.

Bernanke continues answering questions, and he mentions that it would be better if there was a more balanced mix between monetary and fiscal policy.

Regarding EUR/USD, there is a third reason: EUR/USD was rising before Bernanke’s testimony without any reason. I wrote that the EUR/USD is vulnerable towards Bernanke, and that it could fall on any outcome. The pair rose on the prepared statement, but didn’t go too far.

At 1.29, it is now nearly 100 pips off the highs. GBP/USD and AUD/USD are also lower after Bernanke’s late hint. Here is a EUR/USD live chart: