What's behind the US Dollar's sudden reversal

Since June of 2010, the US dollar continued a downward reverse from the positive trend in the midst of European debt troubles. Attention has returned to the US, and our economic data consistently falls below expectations. Double dip concerns, recovery turned "unusually modest" in the words of Fed Chairman Bernanke, and lite quantitative easing have pushed the dollar downward against its currency counterparts. However, following through the negative trend comes an awkward bump that sparks some interest.

So, what's the reason for this sudden reversal? Perhaps some good US data and talks of a faster recovery? I tried to dig up some information, and was pointed to mixed news, this time about improved factory production, sluggish housing numbers, and producer prices (PPI) increasing 0.2% following a 0.5% drop in June. It usually takes time for the markets to react, and the data still isn't as stunning to spark a sharp turn upward.

Turns out the spike is simply a correction - lesson learned. All of the investors who were shorting the dollar along the downward slide have bought back and adjusted their positions; simply put - shorters running out of steam. Real buyers have stepped in to take advantage of this break. At the time of this post, the dollar points downward on the reversed bump, perhaps returning to its trend, or sustaining the break. More follow-through is needed, but its certainly something to pay attention too. Here we see technicals being just as important as fundamentals, as the voice of the markets reveals the direction of foreign capital, and ultimately the fate of the US dollar.

*comparing the dollar to a basket of currencies, as displayed in the 1yr ICE chart above. The dollar/yen is an exception due to it's intense volatility at the moment.*