Trading Nation

After huge Q1, here's what the dollar will do in Q2

US dollar soars in Q1

The U.S. dollar index, which tracks the greenback's moves against a basket of six other currencies but is heavily weighted toward the euro/dollar rose nearly 9 percent in the the first three months of the year, for the best quarter since Q3 of 2008.

And some traders think the real dollar rally could just be getting started.

"Clearly, the dollar strength has been the key driver across asset classes in the first quarter," said Rich Ross, technical analyst with Evercore ISI. "And when you look at that short-term chart, there's very little to suggest that the trend of dollar strength is ending."

Ross said the chart has formed a "nice base of support," which should set up the index for a retest of the 100 level.

And though he doesn't find the long-term picture to be quite as bullish, Ross said that given how bad the chart of the euro/dollar currency pair looks, "you want to continue to buy the dollar, and I think we're going to see the strength continue into the second quarter."

The greenback has been rallying this year as the U.S. economy outperforms much of the world, and as investors prepare for a Federal Reserve rate hike at some point in 2015, which would create demand for dollars, as it will increase the yield that dollar holders receive.

Getty Images

But for Steven Englander, global head of G-10 FX strategy at CitiFX, the economic data could well pose a problem for the dollar.

"I think that the dollar may struggle a bit at the beginning of the second quarter," Englander said.

If Friday's employment report is weak, "it could be enough to make investors concerned that the Q1 weakness is now showing up in employment. That could suggest that what we saw in Q1 is not an aberration, it's potentially the beginning of a more extended slowdown—and that would be dollar-negative."

Read MoreHow long before jobs number disappoints?

Additionally, Englander noted that "the market is very long dollars—still."

For those reasons, the strategist predicted that "it goes up, but there is probably more upside risk in the second half of Q2 than right at the beginning. I don't think the divergence trade is done, but it may be pausing for a bit."

"It's clearly a consensus trade. It's what everyone is living off of right now," agreed Stacey Gilbert, head of derivative strategy with Susquehanna.

Indeed, Gilbert noticed some interesting bearish trades on the PowerShares Bullish U.S. Dollar ETF (ticker symbol: UUP), perhaps as traders figure that "given it's such a consensus trade … there may be a drop" between now and June.