Is the dollar’s run done? Why some traders say yes

Rebecca Ungarino | @ungarino

The U.S. dollar finished the week just barely positive, and some strategists see the greenback heading lower as political uncertainty mounts.

Federal Reserve Chair Janet Yellen's fairly hawkish remarks in a press conference Wednesday failed to boost the dollar, which the next day saw its largest one-day drop in over two weeks.

In her two-daysemi-annual testimony on monetary policy before the House Financial Services Committee, Yellen reiterated that the Federal Reserve still expects to raise its federal funds rate target three times this year. Rate hikes tend to boost the value of the dollar, as higher short-term rates mean that those who hold greenbacks are paid more to do so.

As the dollar shows modest near-term weakness even in the face of this Fed hawkishness, foreign exchange strategist Boris Schlossberg said he sees further downside ahead.

"The market is not buying what Janet Yellen is saying. And that is actually a very, very telling sign," Schlossberg of BK Asset Management told CNBC's "Trading Nation" last week.

"When the Fed chief says, pretty much unabashedly, that she's going to go to three rate hikes, and she sort of talks up the economy, and yet the market remains skeptical, that's telling me something," he added.

Major political uncertainty surrounding the new Trump administration is weighing on the dollar, Schlossberg said. He noted that such uncertainty regarding policy is also weighing on the fixed income market.

"That tells me that both markets remain skeptical about the continuity of this potential growth as we go forward," he said, adding that these issues are lending themselves to being long the dollar right now would be "very, very dangerous" due to such uncertainty.

He would mark the dollar a sell so long as the yen fails to reach the 115 mark against the greenback. He points to the dollar-yen relationship as an important gauge of dollar strength, as weaker equity markets and yields are said to be associated with a stronger Japanese yen.

"We expect the [dollar] to move sideways until we get the details of the Trump fiscal plans, but we remain bullish," Bank of America Merrill Lynch foreign exchange research strategists wrote in a note published Friday entitled, "Waiting for the great fiscal plan."

The team of strategists led by Claudio Piron and Athanasios Vamvakidis wrote that pessimism surrounding the Trump administration has been feeding "stagflation," or an economic dilemma that comes with high inflation, unemployment and slow growth.

The dollar rose nearly 4 percent in the month following the U.S. election in November. The longer-term trend certainly appears bullish, said Gina Sanchez, CEO of Chantico Global.

"I think the trend is still going to be for dollar strength, but I think that this dollar weakness is interesting and telling, because Yellen was really out talking the dollar up. I mean, she was making fairly hawkish comments, and that should lead to a stronger dollar," Sanchez said Thursday on CNBC's "Trading Nation."

Some of the shorter-term weakness appears to be the result of political uncertainty.

"And I think that is probably what's to blame for this. I don't think that it's going to last for very long," and the general trend is still up, she forecasted.

A bearish technical trend is afoot in the dollar index, wrote Miller Tabak managing director and equity strategist last week. The Dollar Index measures the U.S. dollar's strength against a basket of foreign currencies.

A so-called "head and shoulders" technical pattern—a trend that typically points to a bullish-to-bearish reversal in a security—appears to be forming in charts of the index, Maley wrote. As such, a break below the 99 mark could prove quite negative for the dollar.

This, in turn, could have important implications for other assets.

"We cannot get ahead of ourselves...but a lot of investment assumptions for 2017 have been based on the assumption that we'd see continued strength in the dollar. Therefore, if this 'tradable' pull-back becomes a more lengthy one, it could/should put a wrench in the works of many of those assumptions," Maley wrote.