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Why the dollar could be your best trade

The dollar keeps getting stronger, pushing down commodities like oil and gold in its wake.

With Japan expanding its quantitative easing, the greenback hit seven-year highs against the yen. And with European Central Bank looking to get more into asset purchases itself, will the U.S. Dollar Index – which prices the dollar against a basket of six major currencies – continue higher?

"King Dollar is back and we are bullish on the dollar," said Craig Johnson, senior technical strategist at Piper Jaffray and president of the Market Technicians Association.

Looking at a long-term chart of the U.S. Dollar Index, Johnson sees the index as having recently broken out of an eight-year consolidation range. "We're setting ourselves up for another leg higher," he said. "The next resistance level to play for the dollar is going to be about 88 and then after that, it's 92. We think over the next six to 12 months, some of those levels are going to be touched."

While some have worried that the dollar's strength will take its toll on the stocks, Johnson believes otherwise.

"The strong economy should lead to a stronger dollar, which should be bullish for equities," he added.

Like Johnson, Marc Lichtenfeld, chief income strategist for the Oxford Club, is also bullish on the U.S. Dollar Index. "It should go higher," Lichtenfeld said. "A strong economy should mean a stronger dollar. The economy is getting stronger. It's not an economic utopia but it's certainly better than the rest of the world."

Lichtenfeld also notes that the yen and euro comprise more than 70 percent of the Dollar Index, an important fact given that Japan and Europe are loosening their monetary policies.

And Lichtenfeld is also keeping an eye on U.S. domestic politics. "If the Republicans pick up seats in both the Senate and the House as expected, that should be even more gridlock in Washington which means more of the status quo," he predicts. "I don't see a reason why the dollar would reverse meaningfully any time in the near future."

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