Traders call for the dollar to get even stronger

The U.S. dollar strengthened on Monday, as the greenback neared the highest levels since April in relation to the basket of major currencies contained in the popular dollar index. And some strategists and technical analysts say the greenback is only set to get stronger.

For Marc Chandler, global head of currency strategy at Brown Brothers Harriman, the key to the dollar's rally will be the difference between what the Federal Reserve and the European Central Bank do.

Chandler, like most market participants, believes the Fed will be in tightening mode over the next year, raising short-term interest rates after years of keeping them at ultralow levels. Meanwhile, he sees the ECB doubling down on its bond-buying program.

"We're not at the peak, yet, of the monetary divergence," Chandler said in a Monday "Power Lunch" interview. "And this divergence is the key driver of the capital markets."

Should U.S. interest rates indeed rise, it will become more attractive for investors to hold dollars, which will add to the greenback rally. Meanwhile, further quantitative easing in Europe would have the opposite effect, likely increasing inflation pressures and pushing the euro lower. Both of these moves, then, should lead to a stronger dollar and weaker euro.

The technicals tell a similar story to the fundamental call, according to Oppenheimer technical analyst Ari Wald.

The chart "does support further dollar appreciation over the coming years," he said Monday on "Power Lunch." "The more recent strength is marking the continuation of the upward move we've seen."

Wald sees the index rising to 107, which is 8 percent above current levels.


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Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

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