The dollar should stay "pretty well supported into the FOMC (Federal Open Market Committee meeting)," said Simon Grose-Hodge, head of investment advisory at LGT Bank in Singapore, "but I suspect the market is getting too bulled up about how hawkish the Fed will be. The dollar may end the week lower "to correct the overbought status," Grose-Hodge added, though the medium-term trend is "solidly higher."
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Specifically, dollar bulls will be paying close attention to whether the Fed removes the reference that rates will stay near zero for "a considerable time." Sean Callow, senior currency strategist at Westpac, said there's a "good chance" the pledge will be removed. "If maintained USD (U.S. dollar) would suffer at least a temporary pullback," he said.
Even if the Fed does stick to script and disappoints the bulls, many strategists believe the dollar wouldn't suffer much lasting damage. The Dollar Index (DXY) "is way overbought near-term and is likely to consolidate a bit here," said Hans Goetti, head of Asian investments at BIL. "However, the bull market for the U.S. dollar remains intact" and DXY is targeting 88 after breaking 84 resistance, Goetti added.
Sixty percent of CNBC poll respondents (15 out of 25) believe the U.S. dollar will push higher this week. More than a third—36 percent (9 out of 25)—forecast the greenback to decline while 4 percent (1 in 25) said the dollar will trade at around current levels.
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Latest data from IG Markets show client sentiment almost evenly split with 47 percent of their more than 501 clients with open positions betting on a firmer U.S. dollar against the yen while 53 percent expect the cross to fall.
From a charting and technical perspective, Daryl Guppy, CEO of Guppytraders.com, said the Dollar Index will likely continue to consolidate around 84 before staging a rally toward "breakout target" of 86.5.
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Matt Fanning, CIO and fund manager at Fanvestments in Providence, Rhode Island, said the DXY was forming a "bullish wedge" on the charts above 84, and continued to hold support and consolidate above this level. The dollar has had an "extreme run, but still no major sell signals," he added.
—By CNBC's Sri Jegarajah