The Dollar peak

The dollar has stopped it's meteoric rise. It's important to understand that's it's strength HAS NOT come from strong economic fundamentals. The dollars strength can be attributed to a few things:

Deleveraging

Currency traders have had two favorite currencies to borrow from - the Yen and the Dollar. The Yen offered near zero interest while cross currencies from Australia and New Zealand were paying interest rates from 8-10% while appreciating in value. Free money! Until it wasn't. As these leveraged trades unwind the money gets repatriated to the country of origin to pay back what was borrowed. Both the Yen and the Dollar have seen rapid appreciation from the unwind of these trades while the investments (AUD, NZD, Commodities,etc) these currencies funded sold off ...massively

Flight to safety

As the Credit Crisis spread to Europe the darling Euro's potential as an alternate to the dollar has been questioned. Certain European nations are now asking themselves if they should bail out other members who engaged in reckless lending just to support a unified currency. That question remains. Many speculate that the Euro could be abandoned as a result. Those who sought safety in an appreciating Euro put that money back into the good old dollar.

Deflation

Lets not forget deflation. The destruction of credit-money now taking place is affecting money supply despite the Feds best efforts to keep the balloon inflated. The rapidity of the Dollars appreciation concurrent with the fall in equities is consistent with a nasty deflationary spiral of deleveraging and credit contraction.

But the important thing to realize is:

1) The Dollar's rise has abated.

2) It's current level is likely to be temporary.

3) Our economy is not strengthening, it's weakening.

4) Fed bailout's, stimulus and liquidity measures create inflationary pressure.

Notice in both charts the carnage began in July. Commodity and currency markets show a similar trend. This is indication that borrowed bets on commodities, equities and cross currencies started to deteriorate and positions were liquidated causing traders to buy back the currency they borrowed against - the Yen and Dollar.

All commodities should "benefit", but especially Oil related equities.