Dollar optimism or Euro pessimism?

What is going on? We are having a dollar rally. The Euro is off approximately 5% from the highs earlier this month. There usually is dollar weakness as we enter the end of the year. There is really no strong change in the economic fundamentals. Yes, there was improvement in the unemployment rate and retail sales as well as a pop in PPI which suggest that the US economy is doing better. Confidence has risen and industrial production is up. Japan and Great Britain have showed numbers which are slightly negative. Europe seems to have slowed its positive momentum, so on a relative basis the US may be doing slightly better. All good signs which would suggests that risk-on trades should be forthcoming, but we are actually seeing positive dollar flows. The emerging market currencies have not seen the same sell-off as the G10. The really decline has been the EUR and JPY.

The current story seems to be driven by the sovereign risk issues of Greece which may also call into question the fiscal business as usual for the Japanese government. Investors are becoming more sovereign risk aware and the EU is being lumped into one big bundle. Looks like we are seeing euro flight and the only alternative is the dollar. Is this a real dollar rally or just s flight to quality reaction? The interest rate headwinds are large. The monetary and fiscal problems are large. The only positive for a continued rally is a a robust economy in the US relative to the rest of the world. I have been in the lazy V recovery camp so I have been skeptical of a dollar rally. I will have to look closely at the economic information in January. Short-term momentum will cause traders to be long dollars. The fundamentals are less clear.