Why things could be about to change for the dollar

Scott Eelis | Getty Images

After a weekend of celebrating America's birthday, traders could come back to the desks Monday and buy its currency, with the stage set for a U.S. dollar breakout in the second half of the year.

Strategists and traders have been predicting it for months: 2014 was supposed to be the year of the dollar, where the Federal Reserve's tapering of quantitative easing and an improving economy would boost the greenback's value against other currencies, where central banks are easing or dealing with economic or geopolitical challenges.

But they've been wrong.

The U.S. Dollar Index ended the first half of the year weaker, though less than half a percent. At the same time, currencies like Brazil's real, New Zealand's dollar, Australia's dollar, the Japanese yen and the British pound strengthened 3 percent to 6 percent.

The reason for broad dollar weakness? Strategists point to lower yields on Treasurys, which tend to track the dollar, especially at the short end of the curve. Indeed, Treasurys rallied and the yield on the benchmark 10-year note tumbled half a percent.