The dollar is at the low end of its trading zone (roughly 81-82 on the low end and 84 on the high) and likely to be under pressure this week.

The general idea is that risk appetite has returned, following some supposedly good data.

One is an improvement in sentiment among builders.

Another is the news that apparently banks have raised about $48 billion out of  the $78 billion needed to get through the downturn.

But it’s my view that the dollar holding up was not about risk aversion as such, although it probably included a component of it.  (Actually, recently,  you can’t really say it has shown any strength – it’s been struggling bravely).  The dollar’s rally was about deleveraging – which is not the same thing at all. Investors might think that sentiment is getting better but that doesn’t mean that positions don’t still have to be unwound and debts paid back.

But right now, it’s a giddy party again. The Indian Sensex went up 17% in one minute on May 18 on the unexpected news that the incumbent Congress party and the liberalizing PM Manmohan Singh had been reelected. But notice that the spike also involved some hasty short-covering. And it was helped by Sri Lanka declaring that the 25 year war with the rebel (or terrorist, depending on your persepctive) Tamil Tigers was officially over. The Sensex led the world financial bounce with an upsurge of 48%.

We’ll see how that goes.

Meanwhile, injecting some unseemly gloom into the festivities, Jim Rogers tells us that the next meltdown will be in currencies.

I notice that the COT (Commitment of Traders) report shows net long positions in the dollar are at their lowest since 2008. That usually signals a reversal of trend, but expect further pressure in the short-term.