The dollar index hit a 13-month low on Monday, and Todd Gordon of TradingAnalysis.com said the U.S. currency will continue to lose ground against the euro thanks to Federal Reserve policy.
"The euro has been rallying as the dollar has been falling after the Fed indicated that they're more or less done raising interest rates this year," Gordon said Monday on CNBC's "Trading Nation." "That's one of the main reasons the dollar is rallying, as the currency markets are viewing our rates to be moving higher and faster than international rates."
After already announcing two increases to its federal funds rate target this year, the Fed is expected to hold off on a further increase until December at least. This is bad news for dollar bulls, as higher rates generally increase demand for the greenback by making it more attractive to hold dollars as compared with other currencies. The next clue about the Fed's outlook will come on Wednesday, when the central bank announces its next policy statement.
Beyond the fundamentals, the charts also look constructive for the euro against the dollar, Gordon said.
Looking at FXE, the euro-tracking ETF, the trader points out a "downtrend resistance" that has formed in the chart of FXE since 2008. Based on where FXE hit the line in 2011 and 2014, Gordon actually believes that FXE is due for a bounce to take it back to around $125 and meet the "resistance" line.
"The downtrend isn't even broken until the euro gets to about this $125 level as we currently trade $112," he said. "So we have about 10 percent more to go on the upside before resistance is even tested."
However, Gordon also believes that this bounce will occur over a longer time period. As a result, he wants to buy the September monthly 111-strike call for $2.27 per share, or $227 per options contract.
If FXE closes below $111 on September 17, Gordon will lose the $227 he paid to make the trade. The trade breaks even at $113.27, which is the striking price plus the price of the option, and from there, upside is unlimited.
Meanwhile, if the value of the options contract falls to $115, Gordon will conclude that his thesis has been proven incorrect, and will plan to exit the trade at a loss.
The FXE has risen 10 percent year to date.
