Over the last few sessions all eyes and ears were awaiting the testimony of Ben Bernanke due to rumors circulating on the street that the Fed might ease policy again prior to hiking rates. From the time New York traders sat down at their desks, until his address to the Senate Banking Committee at 2pm EDT, market participants lacked conviction as the EUR/USD, USD/JPY and S&P 500 traded on both sides of break even. Bernanke’s testimony set off fireworks immediately when he said the “economic outlook remains unusually uncertain” and the Fed‘s prepared to take more policy actions “as needed”. He additionally made reference to the economy’s somewhat weaker outlook and added that underlying inflation should remain subdued over the next few years. Fed policy makers trimmed their forecasts for U.S. growth, raised unemployment projections and stated that the U.S. is facing the worst job market since the great depression.

Needless to say, traders did not take too keenly to Bernanke’s comments and risk aversion ensued. Metals took a dive with Gold falling $11 from $1194 to $1183 and finished the day at $1185. The USD strengthened vs. European and Commodity currencies, seeing the EUR/USD fall from 1.2820 to 1.2730, with a mild bounce to 1.2750 by end of day. JPY-crosses also took part in the risk relapse, seeing AUD/JPY fall from 77.10 to 76.20 and closed near the lows. Within the hour, bulls ran for the door and stop-loss selling triggered across the board. The S&P 500 finished down 1.28% on the day erasing most of yesterday’s gains and perhaps even more significantly, 10 year Treasury yields made fresh lows for the year at 2.86% towards the end of the session. This is a rather ominous sign for USD/JPY, as well as all JPY-crosses, and should make for an interesting Asia trading session tonight. Confirming this move was Oil prices which declined 1.3% on the day after seeing inventories rise by more than expected.

On the data front tonight we have Australia Q2 Business Confidence Survey, New Zealand July Consumer Confidence and Japan’s May All Industry Activity Index (MoM).