Dollar started on Monday where it left off on Friday - steadily gaining against the majors as all eyes this week turn to the newly appointed Fed Chairman Ben Bernanke  who makes his first Humphrey Hawkins appearance in front of the House Financial Services committee on Wednesday. It will interesting to see how Mr. Bernanke handles himself in the wake of maestro's departure. Chairman Greenspan was notorious for clever obfuscation in front of a generally reverential Congressional audience. Mr. Bernanke on the other hand is a strong believer in transparency so perhaps his rhetoric will be more direct.  More importantly still will be the tone of Mr. Bernanke's remarks. Last week at a private meeting of investors,  newly retired Chairman Greenspan hinted that the Fed may be much more hawkish than the market anticipates.  Chairman Bernanke still carries the baggage of his infamous "printing press" speech of 2002 and is viewed by many market participants as an inflation dove. Therefore, he may project an especially hawkish posture in his first public appearance as Chairman in order to prove his bona fides to the market. If that's the case then currency traders will begin to price in 5% US rates and the greenback rally may have more room to go.

On the economic front, Japan reported a better than expected Current Account surplus (1748.4 Billion yen vs. 1592.9 Billion yen projected) but USD/JPY continued its rebound breaking above the 119.00 figure as comments by Sadakazu Tanigaki, Japan's minister of finance poured cold water on any speculation that the quantitative easing monetary policy will end any time soon. For the time being USD/JPY remains the preeminent carry trade in the market, although as some analysts have pointed out - it is becoming extremely crowded and will most likely show extreme volatility this year as massive capital flows move in and out of the pair.

In Europe a pleasant surprise from the Italian Industrial Production (1.2% vs. 0.6% expected) did little to help euro longs as the pair sank below the 1.1900 barrier on broad dollar buying.  With the market focused on Bernanke testimony the smattering  of eco releases at the front of the week is unlikely to exert much impact on trade.

Boris Schlossberg is a Senior Currency Strategist at FXCM.