The most accurate dollar forecasters –– predict the U.S. dollar will continue to fall in 2010. That prediction is based primarily on the historical relationship between interest rates and the dollar.

Those analysts seem to ignore the strong inverse correlation between the dollar and equities. They’re either assuming equities will continue to rise next year or that correlation will no longer exist.

You see, the scenario of continued dollar decline can only occur if the current environment of ample liquidity and overall positive sentiment continues unabated. The problem is that 2010 presents some serious headwinds for both liquidity and sentiment.

Personally, I’d be surprised if the stock market doesn’t go through a correction next year. I also don’t expect the correlation between dollar and risky assets to fade any time soon.

That correlation will only fade once dollar fundamentals improve and uncertainties about recovery dissipate. At that point, good economic news in the U.S. will be good for the dollar, instead of supporting more risk-taking outside U.S.

Without emergency levels of liquidity, the equity market can only sustain its recent gains if fundamentals are stronger. The problem is that the recovery – if there really is one to speak of – is still weak. Unemployment is still on the rise, foreclosures and delinquencies are reaching record levels, credit is not easily available, and consumers are still deleveraging. So there’s not much reason to be optimistic.

The idea that the dollar will continue to fall assumes that global assets will continue to rise with no correction. And current fundamentals don’t support that brand of optimism in any way.