Risk aversion seen in Asia is showing little signs of slowing up this morning as we head into the North American session. There has been a rush to safety with both the CHF and yen higher across the board. The EUR bulls have found some temporary solace from the better than expected run of euro PMIs. However, both China and Ben are being blamed for the latest market turbulence.

In his prepared testimony yesterday, the Fed chairman focused on justifying his fellow policy cohorts' aggressive monetary accommodation to date, as opposed to saying too much about the future outlook. While a number of participants were in favor of tapering asset purchases as early as in June, most agreed that further progress on the activity front would be required before slowing the pace of purchases would become appropriate. This is in line with the flexible approach approved and promoted by Bernanke

The global capital markets have been thrown into a tizzy by comments from Federal Reserve Chairman Bernanke. US bonds and equities sold off yesterday on ideas that Bernanke was signaling a tapering off of QE. The knock on effect was seen in Asia, even before the disappointing flash China PMI from HSBC that showed the first sub-50 reading in seven months (49.6 vs 50.4 in April, with a fall in new orders and new export orders).

Japanese government yields, which have been rising in recent days, initially jumped to 1.0% on the 10-year yield, almost triple the rate seen on the day before the BOJ announced its massive easing operation in early April. The bond market recovered as the stock market tanked. The Nikkei lost 7.3%, essentially cutting in half gains over the past month.

The rise in Japanese yields hurts the financial sector as they are large holders of

The forex markets were jittery today as Fed Chairman Bernanke confessed to what he might or might not do. Some, who apparently had access to the prepared text of his testimony, reported there would be no tapering off of the current rate of money addition -- $85B per month.

Premature tightening risks the slowing or end of the current recovery, it was reported. Naturally this weakened the USD, as traders felt the increase in the money supply was bearish the USD. Then in his live testimony Bernanke hinted at a possible tapering in the amount of the monthly QE. Adding to the confusion was NY Fed President William Dudley, who claimed the Fed needed three or four months to measure the fiscal drag caused by reduced federal spending.

Was the conflicted testimony by Bernanke premeditated? Probably, as were the additional comments by Dudley. The market, however, has responded and

St. Louis Fed President, James Bullard, a supposed hawk, has been bullying the "single" currency bears into temporary submission ahead of today’s FOMC meeting minutes or at least he should be held responsible for getting the ball rolling. Yesterday, he suggested that the most appropriate policy for the Fed is to continue the current QE3 policy. Dovish comments from the voting hawk has put the "mighty" dollar under pressure when the market least expected it when he mentioned adjusting the pace of purchases in view of incoming data on economic performance, employment and inflation.

The only thing that Mr. Bullard purposely refused to acknowledge yesterday was when the Fed might be tapering off its purchases. Bullard went on to say that like Japan, Europe risks an “extended period of low growth and deflation unless the ECB acts with an aggressive quantitative easing program.” To date, the ECB has been lending

The US dollar is firmer against most of the major currencies, but is more mixed against the emerging market currencies. Although the US reports April existing home sales (consensus +1.4%), the focus is on Bernanke's testimony and then the FOMC minutes.

Essentially, we expect the Federal Reserve Chairman to say essentially three things: First, that the Fed has made progress on its thinking of the QE exit strategy. Second, that there will be no imminent tapering off of purchases of long-term assets and that the decision is dependent on the trajectory of prices and the labor market. Third, that fiscal policy and weakness in Europe are headwinds for the US economy and that the Fed cannot yet be assured that economic growth is sustainable. We suspect some late dollar longs are vulnerable if Bernanke hits these points.

The Federal Reserve is not the only central bank in the news today.

The EUR/USD closed on Tuesday its second positive session in row after bottoming at 1.2800 on May 17th. The pair was fueled by the Fed's Dudley and Bullard's speeches and the lack of comments about the Fed tapering bond buying. The EUR/USD rallied from 1.2840 to be capped at 200 hours MA at 1.2935.

Currently, the EUR/USD is trading around 1.2905, still up 0.2% on the day. The short term perspective is slightly bullish in the 1-hour chart according to the FXstreet.com trend index. Indicators such as MACD, CCI and Momentum are pointing to the north while the Stochastic is neutral.

So, what's next? FXstreet.com analyst Valeria Bednarik says that "it's all about central banks," pointing that the BoJ's decision and the BoE and Fed minutes will focus the market attention in the short term. " Bednarik points in a recent report that "many of the voting

China is aiming to increase foreign trade by 8% in 2013 amid a slow recovery in the world economy and rising trade protectionism. The Yuan (CYB) has been steadily appreciating versus the dollar since last September and accounted for an all-time high of 0.63% of global payments, making it the thirteenth most-used currency in the world.

China and Japan began direct trading between the yuan and the yen (FXY) last June as a move to boost trade and investment between them. This was also viewed as a further step to enable the yuan to become a true global currency. Japan is China's fourth largest trading partner after the EU, the US and ASEAN. Bilateral trade volume settled directly reached ¥10 billion ($1.63 billion US) in 2012. The huge trade volume between Asia's two biggest economies is much more significant than any other agreements China has signed with

By Keith Weiner

Let’s take a look at a few graphs of the dollar, from Feb 1, 2013 through Friday May 17, 2013. Yes, I said graphs of the dollar. I’ve priced the dollar in gold first (of course), then silver, the euro, and even the yen. The pattern is obvious. The dollar is going up.

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I did not show copper, lumber, or wheat though they show the same trend. These commodities are not money, of course.

My point is simple. It’s not gold that is going anywhere. In past articles, I’ve used the analogy of measuring a steel ruler using rubber bands. Using the dollar to measure gold is like that. In this article I show that it’s not just gold, but silver, other currencies, and commodities. The dollar is rising no matter how we measure it.

Federal Reserve Chairman Bernanke testifies before the Joint Economic Committee of Congress tomorrow. The market is anxious for the chairman to weigh in on the recent comments suggesting that even some like-minded regional presidents like Chicago's Evans seems to be warming to the idea of tapering off purchases.

It is one thing for the more hawkish members, several of whom have never felt comfortable with the latest iteration of quantitative easing, to talk of slowing purchases, but it is another thing for some of the more dovish members to talk in this vein. Yet we suspect there is less than meets the eye. With the stock market extending its advancing streak to near 200 days without a 5% pullback and what Bernanke has called "the reach for yield" has driven the industry index of below investment grade yields below 5% for the first time; it is incumbent on Fed officials

The greenback rose compared to all of its 16 most-traded peers last week. A good gauge of its strength is seen in the Dollar Index, which rose to 84.25 at the end of last week, the highest since July 2012. The Dollar Index is used by the Intercontinental Exchange to track the greenback against its six main trading partners.

There are three main reasons for the continued strength of the US dollar:

Reason #1: Better Reported Figures

U.S. retail sales unexpectedly rose 0.1 percent in April, as US consumers spent more on cars, building materials and apparel. Economists surveyed by Bloomberg had expected a figure of 0.3 percent. Actual figures were much better, and also reversed a 0.5 percent drop in March.

The Thomson Reuters/University of Michigan preliminary index of U.S. consumer sentiment climbed to 83.7 in May from 76.4 in April, the highest since July 2007. The

The market yesterday was a write-off in terms of price action, as a few sovereign nations managed to squeeze in a national holiday in parts of Europe and in Canada. This week’s U.S. fundamental highlight will be delivered tomorrow – the FOMC Minutes from the May 1st meeting and Helicopter Ben’s testimony on the Economic Outlook and Monetary Policy before the Joint Economic Committee, in Washington. On the whole, market price actions over the past few-days indicate that a few investors are becoming a tad nervous ahead of Ben’s speech.

Some investors are anticipating that the release of Wednesday’s FOMC minutes will indicate that both the Fed’s "hawks and doves" are beginning to become “increasingly uncomfortable with the current $85-billion a month asset purchase pace.” The possibility of perhaps varying the monthly QE sizes may reduce the potential for an “outsized market reaction to any given adjustment.” Ideally, it seems

I wrote nearly a month ago that "The Worse Things Were For The Mining Sector, The Better They Will Get". This was after the first downward plunge in gold (GLD) and silver (SLV) in April due to the Goldman short.

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Now four weeks later, gold, silver and the miners (GDX) tested that April low and even fell below it only to reverse higher than the previous day's selling. Across the precious metals board, we witnessed bullish engulfing patterns. We witnessed a similar reversal back in October of 2011 in the S&P500 (SPY) when we called for a bullish upturn in equities. See the video update from back then.

We saw today (Monday) gold, silver and both the large and junior miners (GDXJ) dip lower at the open and close above Friday's high on more than triple average volume. This is a significant technical development as it

The US dollar remains largely in a consolidative phase, awaiting Federal Reserve Chairman Bernanke's testimony before the Joint Economic Committee of Congress tomorrow. There has been much talk about tapering asset purchases and Bernanke's views are critical.

However, comments by Japan's Amari, seemingly trying to soften yesterday's comments, after reportedly being criticized by cabinet colleagues helped lift the dollar back toward JPY103. Separately, soft UK inflation figures sent sterling back to the base it built last Friday and yesterday near $1.5165. Against the emerging market currencies, the greenback remains bid.

The BOJ's two-day meeting concludes tomorrow. No fresh initiatives are expected. The chief concern presently is the volatility of the government bond market - an unintended and seemingly unforeseen consequence of what it calls the qualitative and quantitative easing. The yield on the 10-year JGB rose 3 bp and continues to flirt with the 90 bp level. This compares with

Since the S&P 500 made an intraday low of 1,536 on April 18, the widely-followed stock index has tacked on 130 points and the markets have migrated back to full-bore risk-on mode.

Wednesday Wind down?

Two key events this Wednesday could give investors an excuse to book some profits:

• Federal Reserve Chairman Ben Bernanke will speak before Congress.
• Fed minutes are due to be released.

There appears to be little evidence to suggest Bernanke will drift from his recent guarded optimistic stance on the economic outlook, which means his comments may be stock market-friendly. On the Fed minutes front, the release is based on the meeting when the statement "The Committee is prepared to increase or reduce the pace of its purchases…" was added. The key term was "increase". Therefore, the minutes may prove to be dovish or stock market-friendly as well.

Hard To Predict Market's Reaction

Even if we

The U.S. Federal Reserve has a unique window of opportunity, but it may only last for a limited time. It can begin tapering its aggressive monetary stimulus program without decimating the stock market averages it seems to value so much. By acting now instead of waiting until later, the Fed may actually increase the probability that the recent stock market rally can sustain itself into the longer term instead of completely falling apart like it already has several times in the past when the Fed has stepped away. In fact, the more aggressively the Fed tapers now, the more likely it may succeed in the end. Why? The Bank of Japan is now effectively doing the Fed's dirty work.

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Thus far, the Fed's QE3 stimulus program has clearly achieved the goals of boosting stock prices (SPY) with the hopes of creating a wealth effect while also keeping

Actionable Items:

• Highest Positive Spread: Japan Smaller Capitalization Funds (JOF)
• Focus Stock: Aberdeen Indonesia Fund (IF)
• Last Week's Focus Stock: Mexico Fund (MXF)

Equities or Bonds: Sales have come in below forecasts for the 1Q. While analysts had expected 0.5% growth, the rate is 0.2%. Among companies that have reported, 48% beat Wall Street's projections for sales, below the average of 52% from the past four years.

Economists' predict that the second quarter growth rates will not grow at rates beyond 2.5% in the first quarter. The European quagmire has taken its toll, the Sequester and healthcare premiums will have their effects on growth.

However, the Thomson-Reuters/University of Michigan "early-May" consumers' sentiment index jumped to 83.7 in May from 76.4 at the end of May-the highest in since 2007.

P/E Ratios: The 2013 P/E ratio is 14.9 times S&P 500 earnings (bottom/up). The average median is 14.9

FX markets opened with a large pullback in the USDJPY, with some of the higher ups in the Japanese government beginning to taper expectations. Most notably, Japan's Economic Minister Akira Amari had this to say in a Bloomberg interview.

"It's being said excessive yen gains have been corrected a lot. If the yen extends losses a lot, people's lives will be negatively affected. It's our job to minimize that."

The corresponding price action:

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Any comments such of this have the potential to cause rallies in the JPY given the large leveraged position in JPY as indicated by the Commitment of Traders.

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There is another action packed week ahead, but first a recap from last week's FX Outlook.

Summary of Last Week's Action

FX markets kept to the script this past week, with EU continuing to contract and Japan continuing to receive positive feedback

Most of continental European markets are closed today for Whit Monday and Canadian markets are closed for Victoria Day. With important data and central bank officials speaking later this week, the market is content to keep most of the major currencies within the ranges seen before the weekend.

The yen is an exception. Comments by Economic Minister Amari that the correction to the yen's weakness is nearly complete, and additional yen weakness may be harmful, hit a thin pre-Asia market that saw the dollar spike lower to just below JPY102 before recovering. This was seen as first attempt by the Abe government to slow the yen's descent. The motivation does not come from abroad as much as Japanese officials trying to stabilize the bond market.

Officials have tried changing the tactics of their QE purchases, making more frequent though smaller transactions, as the dealers wanted, but this appeared to have

The most important force that has lifted the U.S. dollar across the board is the sense, encouraged by official comments, of the potential divergence in the trajectory of monetary policy between the U.S. and most of the other major high income countries.

In particular, the pendulum of market psychology has swung back toward speculation of tapering off of QE-related asset purchases by the Federal Reserve. At the same time, ECB officials continue to indicate they are carefully considering a negative deposit rate. Many still expect the Bank of England to resume its gilt purchases program and new initiatives on its forward guidance in Q3 after Carney takes the helm.

Meanwhile, Carney and the Bank of Canada continue to push further out when they anticipate full capacity will be reached and when it will remove some accommodation by increasing interest rates. The recent string of economic data, including prices, has been