Last week everyone was saying that the dollar was falling to its doom. this week they are saying that the dollar is rallying to the sky. It is just part of the ebb and flow of currencies. That's why I am not a currency trader.
Question: Will the dollar crash and burn overnight? or Will the dollar rise to the sky?
In practical terms the dollar is not allowed to float freely. Central Banks all over the world are working to keep exchange rates range-bound. Other currencies which "freely float" against the dollar (Euro, Yen, Renimbi, Sterling) are manipulated by the respective governments - many of them want to keep the dollar within a range. Not too strong, not too weak. They keep the dollar in line by selling their own currencies and buying dollars thus weakening their own currencies.
Because of the US's massive buildup in public and private debt, the long-term outlook for the dollar is poor. Also, because the Central Banks of the world are slowly inching their way out of the dollar, the long-term trend for the dollar is down. Nobody wants a dollar crash (just yet), so the dollar, is held on life support. The only thing that will prop it up is another global crisis, someone declares war or a major financial meltdown. Along with the Yen, the dollar is a safe haven - when investors run to the dollar for safe haven status, the dollar goes up. When the crisis passes, the dollar resumes its long term downward decline.