After four months of exuberance markets had had a few hours of pure fright on Thursday but the near-panic that gripped Japan never spread beyond its borders. The dollar and yen have drifted lower as fears subside. DRAGHI'S speech hailed the effectiveness of the bond buy program on the market but remained concerned with the macroeconomic weakness in the periphery. There were no refefences to interest rates. BOJ Governor Kuroda speaks in the upcoming session when all eyes will be fixed on Japanese markets. Added 1 USDJPY, 2 New EURJPY, 1 new USDCAD and moved the stops and targets in both of our existing EURUSD trades ahead of tomorrow's release of German Q1 GDP and IFO. All of this and the silver as well as the Aussie trades are in the latest Premium Insights. 

The FOMC minutes summed up Bernanke's testimony; more progress is needed in the economy before QE is slowed. The US dollar was the best performer Wednesday while commodity currencies sank.  Data from China is in the spotlight with the HSBC China PMI. 2 new EURUSD & 2 new EURJPY have been issued after 4 trades hit all targets, including both EURUSD longs, while EURGBP were stopped out. Access to the latest trades is seen in the latest Premium Insights.

The Fed's repetitive references to tapering asset purchases and increasing them are the latest rhetorical tool in guiding market sentiment. As the economy cools off, the doves at the Fed are on a mission to restore a more symmetric rhetoric, following a hawkish narrative prevailing in the first 3 months of the year. Only this time, the yen's occasional gains during rare risk aversion become an opportunity to ... continue here...

A top Fed official shot down near-term tapering speculation ahead of Bernanke's testimony. The euro was the top performer while the pound lagged after soft UK inflation data. The Bank of Japan decision in is the major event on the calendar. GBP traders await the release of Wednesday's retail sales, followed by Thursday's release of the revised UK Q1 GDP, which may produce a positive combination for the pair and possibly cap EURGBP. Both of last night's EURUSD are in progress as is GBPUSD, both USDCAD, 1 CADJPY, 2 EURGBP and 1 silver, all seen in the latest Premium Insights.

NY Fed President Dudley said risks to the Fed's monthly QE program are double-sided, saying purchases could be increased or decreased. He seemed to brush off the idea of tapering in the next few months, saying it would take a 'material' change in the labor or inflation outlook to change course.

St. Louis Fed President Bullard – who has been hawkish in the past – was more explicit, saying he can't envision a good case for tapering unless inflation turns around.

The US dollar's response to the comments was somewhat surprising. In the past, comments promoting tapering have boosted the dollar but the opposite didn't occur here. The lack of a significant dollar sell off following the comments suggests either 1) more than Fed talk is underpinning the dollar rally 2) the market wants to wait and see what Bernanke says Wednesday.

The market could also be apprehensive about the upcoming Bank of Japan rate decision.

The BOJ will get a final, and perhaps invaluable, piece of information before its announcement. At 2350 GMT, April trade balance numbers will be released. This is the first month of data following the doubling of QE and drop in the yen in early April. Exports are expected to rise 5.4% y/y with imports climbing 6.7% y/y.

For Aussie traders, the Westpac consumer confidence numbers will be released at 0030 GMT and the DEWR report on skilled vacancies at 2100. It's rare for either data point to move the market.

Expectations for the BOJ are fairly low but there could be significant policy signals in the bond market. In the past 10 days, 10-year JGB yields have risen to 0.88% from 0.60% and officials are worried. The BOJ response could be as simple as jawboning but they could go much further. The problem is that, in terms of raising inflation expectations, the higher yields are positive.

If the BOJ signals a strong stance against rising yields the yen is likely to drop. If they signal a willingness to let yields rise, the yen could turn around.

Lower than expected UK inflation weighed on GBP across the board and boosted EURGBP towards its 200-WMA, but GBPUSD remained above 1.51 amid traders' unwillingness to extend USD longs ahead of Bernanke's speech tomorrow. The Fed Chairman's annual testimony to Congress' Joint Economic Committee will likely sound off a balanced approach aimed at keeping the door to the possibility of tapering asset purchases when the data warrants it, but knee-jerk selling in USD is likely to emerge on the existing likelihood that the Fed will also be able to increase QE, a notion that the central bank will not want to be displaced from market expectations. GBP traders will also see the release of tomorrow's retail sales, followed by Thursday's release of the revised UK Q1 GDP, which may produce a positive combination for the pair and possibly cap EURGBP. Both of last night's EURUSD are in progress as is GBPUSD, both USDCAD, 1 CADJPY, 2 EURGBP and 1 silver, all seen in the latest Premium Insights.