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Where the Dollar Will Rally the Most

Last Friday's payroll report is continuing to lift the dollar—so much so that traders are starting to wonder how high it can really go.

Higher, said Callum Henderson, global head of FX research at Standard Chartered.

"It's an amazing market, which rejoices at just over 200,000 jobs created," he told CNBC. But even so, "the U.S. is a relatively strong story amidst anemic growth at best if not outright recession in Europe and elsewhere. So we still favor the U.S. dollar, particularly against G-10 currencies, for the first half" of the year.

Henderson is more sanguine on some currency pairs than others, though. Looking more closely at the G-10 currencies, he pointed out that "the dollar has outperformed particularly against those currencies where the central bank either has a weakening bias or is perceived to have a weakening bias."

Those would be the yen, what with the incoming Bank of Japan governor talking about aggressive monetary easing, and the British pound, thanks to weak economic reports bolstering expectations of new central bank stimulus.

Henderson noted that the dollar "is not extending gains against theeuro, where the ECB is shrinking its balance sheet." So despite Italian turmoil and French financial weakness, Henderson is looking elsewhere for currencies to trade against the dollar.

One note of caution: Henderson warns that the pound's slide could stall when the new Bank of England chief is actually installed. "When he actually comes in we may well see some buying back on the fact, but sell the rumor well ahead of time."

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