This could be the key to the dollar's next move

The U.S. dollar has regained some strength in recent weeks.
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The dollar index is closing in on its March highs, a possible springboard to 12-year and even all-time highs.

With the Fed positioning for a December rate hike, the dollar index, which tracks the dollar's performance against six currencies, has risen more than 2.2 percent in the past week. It was trading at about 99.4 Tuesday.

"What everybody's looking at is 100.39 set in mid-March, a percent higher than where we're currently trading. Above there are levels we haven't seen in a long time. The last time it was above 100 was back in 2003," said Marc Chandler, head of currency strategy at Brown Brothers Harriman.

Chandler said that, technically, the dollar index would be set up to take aim at 101.80, the 61.8 percent Fibonacci retracement of the move from the 2001 peak of 121 to the 2008 low of 70.70.

After its move, the dollar index could face some resistance at 99.89, a level where it would appear overbought, he said.

"If we get above 101.80, technicallly, it would suggest we're on our way to the old high of 121," Chandler said.

The dollar index is seen as a limited metric since it is heavily influenced by the euro, and analysts expect the dollar's big move could be against emerging markets and other currencies, which are not included in the index.

"There's been a very good several weeks for the dollar," said Vassili Serebriakov, currency strategist at BNP Paribas. "It can still go higher but we're not looking for a very large gain into year end, just moderate."

Serebriakov said the dollar index could ultimatley test its previous highs but the dollar itself may have bigger moves in the near term against the commodity currencies. He expects the euro to reach parity with the dollar, but not until next year. Chandler expects the same.

But Goldman Sachs sees parity even sooner. "It remains our expectation that EUR/$ will reach 1.05 ahead of the December ECB and parity by year end," Goldman analysts said in a note this week. The euro was at 1.07 Tuesday.

The European Central Bank holds a Dec. 3 meeting where it could cut the discount rate and add to its quantitative easing program.

The dollar index represents a calculation of six currencies against the dollar, including the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc. Prior to the creation of the euro, the index included the German mark, French franc, Italian lira, Dutch guilder and the Belgian franc.