EU focus: Dollar feels the heat ahead of Bernanke testimony

The dollar struggled to regain its footing on Tuesday after a steep decline, while the euro held firm as investors bet the Federal Reserve will stick to its easing course even as the ECB talks of tightening.
Fed Chairman Ben Bernanke is expected to remain cautious about the economy at his semi-annual testimony before the Senate Banking Committee starting at 1500 GMT.
In the words of New York Federal Reserve Bank President William Dudley: "We're still very far from achieving our dual mandate of maximum sustainable employment and price stability."
This puts the Fed at odds with other major central banks, which are starting to worry about rising price pressure, and reinforces the view that the European Central Bank will probably hike rates before the Fed.
Bernanke's testimony could provide the impetus for more dollar-selling, said Andrew Robinson, FX market strategist for Saxo Bank. "If we get any indication that he is going to complete the QE2 measures all the way through...I think it is quite possible we will see further dollar weakness," he said, referring to the Fed's $600 billion bond-buying programme. If the dollar index drops below trendline support around 76.20 that roughly links its 2008, 2009 and 2010 lows, that could open the way for a further decline toward its 2010 trough of 75.631, Robinson added.
The common currency was further helped by calmer nerves after oil prices fell on expectations that increased production from Saudi Arabia can offset supply disruptions stemming from Libya's turmoil, and Wall Street ended firmer.
Markets are keeping a close eye on the outcome of the ECB's policy meeting on Thursday.
The Reserve Bank of Australia kept interest rates unchanged at 4.75% as had been widely expected. The central bank said the current monetary policy is appropriate and added that the global economy is continuing to expand.