Developments surrounding Bernanke's position will continue to be watched closely in the short term. Senate leaders are aiming to hold a vote this week on whether to confirm Bernanke for a second four-year term. There will also be some speculation that there will be an informal pact for Bernanke to pledge low interest rates in return for supporting his nomination.
This speculation will be particularly important given that the latest FOMC meeting will announce its interest rate decision on Wednesday. The uncertainty surrounding Bernanke will tend to lessen expectations of firmer rhetoric by the Fed. Nevertheless, the net risks still point to a slightly more optimistic Fed tone which should help lessen any selling pressure on the dollar.
The existing home sales data was weaker than expected with a drop to an annualised rate of 5.45mn for December from 6.45mn the previous month, but prices rose and inventories declined which should provide some support early in 2010. The dollar can still gain some defensive support on generally weaker risk appetite.