NEW YORK ( TheStreet) -- The dollar index had been trading inversely to equities, but that link is fading, which means regional currency valuations will be based on forward growth expectations coupled with government debt obligations.

This means the dollar may lose the flight-to-safety status that it has enjoyed over the last 24 months of interbank credit challenges.

Traders may see the dollar gains in 2010 wiped out as markets look for austerity plans to be implemented as soon as the last of the stimulus drip-feed is out of the way.

Equities have obviously held lower in recent sessions. Now that they have absorbed the end of the first half of the year -- as well as the disappointing June U.S. nonfarm payroll report -- they will reveal whether there is enough speculative interest to push the S&P 500 futures below 1005 or above 1150. A move either way is likely to instigate a bout of trading that will determine the near-term direction of markets.

The dollar has been pounded lower by the yen and Swiss franc for a little while, and now the pound and euro are joining the action.

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If we see traders go long the Australian dollar/dollar from 0.8500 or go short the dollar/Canadian dollar from 1.0570 and there is follow-through, then it is unlikely the dollar index (now at 85.00) will test resistance at 87.00 again anytime soon.

There will be days of dollar dominance, but the week-long, long-dollar rallies may not be seen again until the Federal Reserve hints at a rate increase based on increasing output and employment numbers.

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