Forex - EUR/USD shrugs off Bernanke comments, weak U.S. data

The euro reversed earlier gains against the dollar on Wednesday and fell after Federal Reserve Chairman Ben Bernanke told the U.S. Congress policy will remain loose for now.

In U.S. trading on Wednesday, EUR/USD was down 0.21% at 1.2878, up from a session low of 1.2869 and off from a high of 1.2998.

The pair was likely to find support at 1.2819, Monday's low, and resistance at 1.3029, the high from May 14.

In prepared testimony to the U.S. Joint Economic Committee in Washington, Bernanke told lawmakers ultra-loose monetary policy was providing "significant benefits" to the economic recovery and reiterated that the bank’s asset-purchasing program will remain in place for now.

Bernanke added withdrawing monetary stimulus could prompt interest rates to rise temporarily but could threaten the country's economic recovery as well as price stability.

"A premature tightening of monetary policy could lead interest rates to rise temporarily but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further," Bernanke said in prepared remarks of his testimony. 

"Such outcomes tend to be associated with extended periods of lower, not higher, interest rates, as well as poor returns on other assets. Moreover, renewed economic weakness would pose its own risks to financial stability."

Bernanke added that while the labor market is showing signs of improvement, long-term employment rates remain high and consumer inflation low.

Stimulus measures currently in place, such as the Fed's monthly USD85 billion bond-buying program, weaken the greenback by flooding the economy full of liquidity to keep interest rates low and encourage investing and hiring.

Elsewhere Wednesday, National Association of Realtors reported that U.S. existing home sales rose 0.6% to 4.97 million units in April from March’s revised total of 4.94 million. 

Analysts were expecting U.S. existing home sales to rise 1.4% to 4.99 million units in April.

The dollar fell against most major currencies on the soft housing data and Bernanke's dovish comments though it quickly bounced back due to its appeal as a safe haven as well as sentiments that expectations for monetary policy to remain accommodative have already been priced into the market.

The euro, meanwhile, was up against the pound and up against the yen, with EUR/GBP trading up 0.49% at 0.8559, and EUR/JPY trading up 0.70% at 133.19.