Dollar Stays Defiant

5.) The 4.14% drop in the Nikkei, in particular, on Tuesday supports the dollar vs. the Japanese yen. The Nikkei has fallen 19% since its peak in April. The Bank of Japan is unlikely to end its zero-interest-rate policy or suck out more liquidity with its stock market in such jeopardy, says Laidi. The Bank of Japan ends its two-day policy meeting Thursday, and its ensuing statement on the economy could only serve to provide a floor for the yen, he says.

6.) Several emerging-market currencies that supported lucrative carry trades around the world are also suffering vs. the dollar. The Icelandic currency fell to a six-week low vs. the dollar Tuesday after Standard & Poor's gave a negative outlook on the country's economy. The credit rating agency last week called into question Iceland's ability to right itself after years of overheated expansion. The Icelandic crown hit fresh six-week lows at 74.88 per dollar Tuesday. The Turkish lira is down 4.7% at 1.6230 per dollar, despite intervention by Turkey's central bank Tuesday with a purchase of $150 million in lira.

7.) Key to the dollar's strength has also been the Fed's inflation-fighting rhetoric. Higher rates are good for the dollar, as U.S. assets become more lucrative. Indeed, the dollar surged after Bernanke's comments last week, which kicked off a chorus of anti-inflation Fedspeak. But with no FOMC meeting between June and Aug. 8, the anti-inflation sentiment may cool, threatening the dollar.

Back on the dark side, U.S. stock market indices fell again Tuesday. The Dow Jones Industrial Average fell 0.8% to 10,706 and is now in negative territory for the year. The S&P 500 fell 1.03% to 1223, and the Nasdaq Composite fell 0.90% to 2072.