With the United States closed for Memorial Day, the next 24 hours might prove to be pivotal for dollar-based investors.

The majority of currencies are up against the dollar this month. So far in May, the dollar has plunged 5.8% versus the euro, 6.1% versus the Canadian dollar, 3.5% against the Norwegian kroner and 3.6% versus the Japanese yen.

Once again, the dollar is declining sharply vis-a-vis gold -- down 7.3% in May. In fact, gold is rising against all major and peripheral currencies over the same period and since 2005 has posted cumulative gains against all currencies.

On Friday, Standard & Poor's placed the AAA credit rating of the United Kingdom on watch for a possible downgrade. The United States, also amassing gobs of debt, is feared to be joining the U.K. as deficits run out of control and threaten America's AAA credit rating. In all honesty, more than half of the sovereign nations in industrialized world probably don't deserve AAA or AA credit ratings because of rising deficits, declining tax revenues and unprecedented fiscal spending in the worst economic recession since at least 1980-81.

The dollar currently trades at 1.40 versus the euro -- a key technical trading level that might mark the next phase of this crisis if it's violated.

As global risk aversion has returned like a thunder-bolt since early March lifting all riskier assets, the dollar has started to lose important technical support.

Fundamentally, the dollar belongs in the basement as a toxic combination of mushrooming budget deficits, two overseas military conflicts and a seemingly never-ending credit crisis force the dollar lower. The budget deficit alone is simply mind-boggling; the United States is projected to amass a $9.9 trillion dollar budget deficit from now until 2019 representing an 80% debt-to-GDP ratio. And keep in mind this estimate is courtesy of the Congressional Budget Office (CBO) so it might be too conservative.

The dollar has swooned recently as investors dump Treasury securities and the dollar in favor of everything with a risk bias, including junk bonds, emerging market stocks, small-caps, commodities, etc. If risk has truly returned then the dollar is poised to head lower. But if we suffer another major stock market sell-off -- which I expect -- then the dollar might snap back very quickly as investors run to safe-havens.

To be sure, the latest periodic market declines we've experienced since April have resulted in a weaker, not stronger, dollar. It will be interesting to see how the dollar responds amid the next big stock market sell-off. Stocks have already gained more than 35% since March 9 while many emerging markets have almost doubled since late October.

I'll be watching the 1.4055 level very closely this week on the dollar/euro cross. If this is violated then I'll be buying small positions in Canadian dollars, Norwegian kroner, Japanese yen and euro. And any dollar correction from these levels or higher should be viewed as an opportunity to sell more U.S. dollars.

Evidently, the cliff is approaching for the dollar -- perhaps an event welcomed by the government since it encourages a monetary phenomenon in desperate shortage -- inflation.