Wednesday was the crux of the week for fundamental currency traders. As US capital markets came on line in the morning New York hours, FX participants went to work evaluating the ongoing uncertainty in the middle east standoff as well as fresh event risk from a durable goods orders report and Fed Chairman Ben Bernanke’s testimony before the Joint Economic Committee.

Conditions in EURUSD were choppy through all three global sessions with a pronounced swing higher to 1.3375 starting in the London session, almost completely reversing course in a subsequent pull back to 1.3325. Range-bound activity in USDCHF was just as serious as spot made a gradual move to 1.2085 before shooting to 1.2155. Against the British pound, the dollar forced its way to 1.96 in the London session before the pair made a quick swing off of range resistance just below 1.9685. Finally, USDJPY has once again been weighted by risk aversion. The recently volatile pair plunged nearly 160 points from Asian session highs to 116.40.

Though the dollar is still contained within broader ranges across many of the majors, volatility was stoked Wednesday through a number of events that have attracted traders from all asset classes. Through the overnight sessions, market participants were moving on rumors and preliminary news reports on the Iran/UK standoff. The action began just after the close of US markets on Tuesday when a rumor that Iran fired on a US navy ship found its way to trading desks. While the rumor was ardently denied by the US military, jumpy traders had already moved on it. In the low-liquidity conditions of electronic trading, crude quickly soared above $68 per barrel, though it pulled back just as quickly. Furthermore, the uncertainty surrounding the fate of the British prisoners did not completely dissipate when the rumors were doused. As time zones came and went, currency participants clearly went to work clearing risk from their books by unwinding carry positions. Both the Japanese yen and Swiss franc rallied in the crosses and against the dollar as a result. A tailored gauge of geopolitical uncertainty, crude held on to some of its short-lived gains from the overnight. By the morning hours in New York, the active contract was quoted at $64.50, up nearly 2.5 percent from Tuesday’s close.

As US markets came online, traders found additional risk to keep them on their toes. The Commerce Department’s durable goods orders report was a mixed back, though took on a bearish bias when it was taken into the context of expectations. According to the data, total bookings for goods lasting three years or more rose 2.5 percent in February. Aside from the pick up, the print fell short of expectations while January’s multi-year record contraction was revised even lower. Looking to the less volatile calculation, that excludes the transport complex, orders actual missed expectations of a positive showing with a 0.1 percent drop. This is the fourth dip in the past five months. Contractions in machinery and metals components suggestions demand from firms is cooling as they look to burn off excess inventory and wait for the manufacturing sector to find its footing. On the other hand, the non-defense capital goods excluding aircraft – a proxy for future business investment – actually rose for the first time in three months. This inconsistent data will likely leverage the importance of next Monday’s ISM manufacturing report. Also of concern for fundamental traders was Federal Reserve Chairman Ben Bernanke’s testimony before Congress. Distilling the most important points from a range of topics, the markets seemed to quickly latch on the inflation and economic growth outlooks. Rebuffing doves in the market, Bernanke said inflation remains the Fed’s ‘predominate policy concern’ as core inflation remains ‘uncomfortably high.’ At the same time, the growth forecast has been throttled back as he sees ‘moderate’ expansion in the coming quarters. Addressing more topical issues, he said that he does not yet see the weakness in the housing and manufacturing sectors spilling over. Furthermore, he predicted the subprime crunch would likely be contained. All clear signals that the possibility of a hike is still on the table.

Stocks were sent into a steep decline Wednesday morning as Bernanke’s persistent concern over inflation added to the unfavorable outlook found on the disappointing durable goods numbers. By 15:00 GMT, the Dow was off its open by 0.87 percent at 12,288.90. Not far behind, the NASDAQ Composite fell 0.74 percent to 2,419.49 while the S&P 500 slid 0.74 percent to 1,418.24. The battered housing sector once again found its share of top movers. Beazer Homes saw its stock price drop $2.88 or 9.2 percent to $28.53 after it was revealed the firm is the target of a federal criminal probe. Elsewhere, Wal-Mart Stores found that even the retail giant had limits. The firms CEO, Leo Scott, announced it was shelving its attempt to open a store in New York City. Shares fell 1.5 percent to $46.76 on the news.

The Treasury market was netting the benefit from geopolitical uncertainty and underperforming data. Ten-year notes were trading 8/32nds higher at 100-15 by 15:00 GMT as yields slipped 3 basis points to 4.565. Bonds were up 7/32nds at 99-15 as yields edged a basis point lower to 4.783.

John Kicklighter is a Currency Strategist at FXCM.