• Bernanke reiterates much of recent FOMC outlook for moderate recovery, slow fall in unemployment
  • Bernanke lays out potential further easing steps but shows reluctant reluctance to use them.
  • Germany, Portugal have weak bond auctions
  • ECB’s Makuch: No reason to speculate on higher rates before 2011
  • Merkel warns Hungary stability pact applies
  • Hungary willing to deal with EU but not IMF on deficits
  • National Bank of Greece says passes stress test
  • IMF: Budget cuts to trim euro zone growth
  • S&P 500 falls 1.3%
  • US yields fall to recent lows; 2s fall to a record 0.56%; 10s to 15 month lows at 2.85%

Ben Bernanke offered the markets the worst of all worlds today. He delivered a fairly downbeat outlook for the US economy but offered no magical fixes like further quantitative ease to fix the problem.

In recent days the market had come to expect Bernanke to warm up his monetary helicopter and begin dropping money from the heavens. Stock traders were the most disappointed in the reluctance of the Fed chair to follow that route, hitting stocks straight away. The dollar rallied and risk trades sold off as the Fed declined to allow carry traders even cheaper money with which to a wager.

EUR/USD dropped from 1.2815 ahead of the testimony to 1.2755 in a flash after the headlines hit the tape and it took the market several minutes to work through options-related buying ahead of 1.2750 before sliding to a 1.2732 session low. We end the day at 1.2768.

GBP/USD was a wild ride today, gyrating in Europe on a fat-finger trade. It fell for much of the US session with a US corporate a particularly active seller, setting the tone from the early part of the day. We slipped below yesterday’s 1.5155 low, triggering stops and fell to 1.5126 before edging up to 1.5173 at the close.

AUD/USD was hit by US real money in US morning trade and traded with a heavy tone for much of the day. Bernanke’s downbeat outlook for the US weighed on the global growth outlook and undermined the commodity currencies. AUD fell as low as 0.8765 as dealers hoping for a break of important resistance in the 0.8860s and 80s jumped off the bandwagon.

USD/CAD bounced on Bernanke, to 1.05 from 1.0415 ahead of the testimony. Risk off ruled the roost this afternoon as Bernanke refrained from giving commodity markets a fresh does of monetary stimulus.

USD/JPY was a non-factor, capped by exporters toward 87.50 but weakness was limited despite record low US yields by fears of Japanese action to weaken the JPY. USD/JPY closes at 87.03 after holding 86.86 overnight lows. 86.90 was the US bottom, prompting modest short-covering. If USD/JPY cannot go down on a record low US two-year yield, I’d imagine a rally could unfold ahead.