The dollar's summer-long deterioration against the euro and yen is like a tale of two currency trades—one seemingly based on the end of panic and the other a technical bounce unlikely to last.
That's the opinion of currency experts who think that at least in the case of the euro-dollar trade , the weakening US currency is actually a return to normalcy after a stretch of uncertainty over European sovereign debt problems.
"What we're seeing is the euro strengthening against the dollar simply because of the fact that the fears were grossly overblown in terms of the debt crisis in Europe," Cardillo says. "The economy in euro-land is not likely to fall back into recession and will probably limp its way through the crisis."
The dollar-yen trade is a little more complicated, with many traders saying the Japanese currency's 15-year high against the dollar is hard to figure considering the respective countries' monetary policies.
Since the start of the financial crisis, the Federal Reserve has been actively devaluing the dollar in an effort to promote liquidity and make US exports cheaper.
But the Bank of Japan is even more aggressive in keeping its currency weak against the dollar, and there's widespread belief that if the trade keeps going in its current direction, the Asian bank will step in to devalue.
"The yen stregthening against the dollar makes no sense whatsoever. There is no rationale for a strong yen," says Dennis Gartman, author of The Gartman Letter investor guide. "Nonetheless, it has been getting stronger. Everybody I know has been trying to pick the top of the yen and the bottom for the dollar, and they've all gotten taken to the woodshed."
Indeed, investors face tough choices these days in the currency trade.
A succession of weak US economic data has bets on a strong dollar a tougher sell. The greenback rallied about 13 percent against the euro during the spring months after concerns were raised over debt defaults in Greece and across the euro zone.
But as countries began passing austerity measures and bond sales went off fairly well, the euro turned around after hitting a low June 7 and has rallied back to where it was before the debt crisis hit.
The question is whether the strength holds. Gartman is a euro doubter.
"Has the move from $1.18 to $1.30 been surprising? Yeah, it's been surprising. But the major trend is still a strong dollar against the euro," says Gartman, who believes the two currencies will hit parity at some point.
Whether Gartman's prediction comes true likely will depend on how well the US economy fares against the euro-zone countries.
That question could be resolved when the US government reports employment trends later this week, and when the Federal Reserve Open Market Committee meets next week to decide interest rates and issue its forecast on economic conditions.