The U.S. Dollar Index continues to defy gravity as buyers continue to step in and carry the greenback above 74.00. Despite breaks below the “00” the bears were never really able to accelerate the negative momentum and price action gravitated around the major psychological level.

The fact that there seems to be a near-term floor between 73.63 and 73.51 in the U.S. Dollar Index seems to also be encouraging the dollar buyers even though that has not manifested into buying momentum.

The yen held steady amidst the U.S. equities rally where the dollar powered higher by 322 points. In an environment that would appear to encourage risk taking, the yen was not sold as is the norm. In fact, gold has held after the correction lower where buyers stepped into buy the 1850 level.

One major boost to the greenback was Moody’s downgrade of Japan’s credit rating. The yen weakness, which essentially held the USD/JPY above the 76.30 to 76.00 support area, comes as traders were already nervous about Finance Minister Noda’s warning of a surprise intervention.

Moody’s cut Japan’s rating to Aa3 which has to be music to the BOJ’s ears as this is akin to a currency downgrade.

Traders will continue to speculate about the BOJ’s next move as much as they will try and discount expectation about what Fed Chairman Bernanke will say in Jackson Hole on August 26.

Will traders continue to be as euphoric as they were today regarding China’s “positive” news. I have been watching this with great curiosity as the “less bad is good” psychology effects market participants. This is not sustainable and profit taking in equities should be expected Wednesday.