FOREX-Dollar bulls pull in horns ahead of Bernanke testimony
* Dollar broadly softer ahead of Bernanke testimony
* Bernanke seen hammering home message that tapering is not tightening
* Aussie dollar among standout currencies overnight
SYDNEY, July 17 (Reuters) - The dollar stayed on the defensive in early Asian trade on Wednesday as investors suffered a case of cold feet ahead of Federal Reserve Ben Bernanke's semi-annual testimony in Congress later in the day.
Investors are wary of being long on the dollar after Bernanke last week caused a shakeout of positions with comments that were considered unexpectedly dovish.
The dollar index, which tracks the greenback's performance against a basket of major currencies, held near a three-week trough, having slid around 0.6 percent overnight.
That saw the euro pop back to $1.3150, in sight of last week's peak of $1.3208. Against the yen, the greenback slipped below 100 to 99.18, pulling further away from this month's high of 101.53.
Bernanke is expected to underscore that a tapering of asset purchases does not equate to a tightening of monetary policy and to hammer home the message that overnight interest rates will be kept near zero for the foreseeable future.
That would still leave in place plans to start tapering before the end of the year, assuming the economy improves as the Fed expects. The president of the Kansas City Federal Reserve Bank, Ester George, again argued that the central bank should start cutting its massive asset-buying programme in September.
Traders said the preemptive move to cut long dollar positions meant there could actually be room for a bounce if Bernanke did not sound too dovish.
"We continue to favour running long dollar positions versus G10 currencies, whose central banks are in easing mode, particularly sterling right now," analysts at BNP Paribas wrote in a note.
A notable mover overnight was the Australian dollar, which jumped more than 1 percent as investors were forced to cut bearish positions after minutes of the Reserve Bank of Australia (RBA) led the market to lengthen the odds of a rate cut next month.
The Aussie last traded at $0.9240, well off a three-year trough of $0.8998 plumbed on Friday. Immediate resistance is seen around $0.9255/65, an area containing the overnight high and the 38.2 percent retracement of its June-July fall.
Ahead of Bernanke's testimony, the Bank of Japan will release the minutes of its June 10-11 meeting, where it reaffirmed its commitment to aggressive reflationary policies.