W(h)ither the buck?

What's going on with the dollar? Yesterday, with relatively little warning, the greenback sold off hard against just about everything. There was no obvious news catalyst; indeed, the ISM data was if anything dollar-positive. Yet virtually from the word 'go' yesterday the dollar began falling, and this week has literally been the worst performing major currency in the world, even declining against perennial whipping-boy the Taiwan dollar:

There are a few possible explanations. One is that fixing-related supply of dollars last Friday prompted a break of key technical levels, which has then been acted upon this week. And to a degree that may be true; clearly EUR/USD appears to have broken out of its corrective weakness off the late-April highs.
Yet anecdotal evidence suggests that there is more to it than that. While technical and momentum players were heavy participants yesterday, in USD/CHF in particular, Macro Man also heard rumblings of more fundamental, longer term models generating a monthly signal. These sorts of models tend to look at things like interest rate differentials, so far as Macro Man is aware. Yet there, too, an obvious catalyst is lacking. Indeed, the current 10 year swap spread between the US and Europe suggests that EUR/USD should be 1.34, not 1.36, and offers little rationale for the vehemence of recent dollar weakness.
Of course, there's another participant in the market who moves large size without any obvious catalyst: Voldemort and the FX reserve managers. And there does appear to have been quite a flurry of activity on that front over the past few days. If this were to continue, it could easily push EUR/USD on to fresh all-time highs. And that's one of the reasons that the currency market has been so frustrating to so many over the past few years. While the absolute magnitude of EUR/USD moves remains frustratingly small, the relative magnitude of moves when Voldemort comes to market, and the absence of obvious catalysts for him to do so, is relatively large. Which in turn makes EUR/USD very, very difficult to play as anything but a short-term technical proposition or a very long term vol bet.

One thing we can be sure of, however: recent dollar weakness is not about risk aversion, despite the declines in USD/JPY and USD/CHF. Not only did equities put in a remarkably strong showing yesterday (and it can't all be down to the iphone!), but traditional risk currency favourites like NZD/AUD, and TRY have performed remarkably well. No, this is a pure dollar move; given that Macro Man didn't really see it coming, he's not too sure how and when it will end.