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King Dollar’s reign might soon come to an end

Greenback just keeps getting greener.

The U.S. dollar index, which tracks the dollar versus a basket of currencies, is up more than 9 percent year-to-date as the U.S. economy steadily improves and the Federal Reserve ends its stimulus programs.

So, will king dollar continue to reign supreme?

"The long dollar trade is getting very overstretched," said Kathy Lien of BK Asset Management. "While there is a fundamental story for the dollar to continue higher, I think we will get an opportunity to buy it at lower levels."

According to Lien, that opportunity could come sooner than later. "We don't have much going on this week except for retail sales on Friday. And for the next three weeks we're not going to get any more clarity on eurozone or monetary policy, so I think there could be some profit taking."

Lien added that U.S. interest rates have remained "stubbornly" low, something that should begin to weigh on the dollar as lower rates make U.S.-dominated bonds less attractive.

"I think the longer-term picture is still positive for the greenback," she said. "But investors should not chase the current trend and instead wait to buy on a pullback."

Mark Newton of Greywolf Execution Partners agreed that, at least in the near term, the risk reward for the dollar is not as favorable for those who are already long, but said the broader trend remains positive.

"We just saw the dollar break out from a level that has held for the past nine years," he said. "My thinking is that even in the short run, if we get a bit stretched and parabolic that pullbacks would still represent a good chance to buy."

"We could get to 89 before there is any sort of consolidation," Newton added.

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