Amid wild fluctuations in stocks and range-bound trading in bonds this week, the U.S. dollar marched ever higher.
The currency is set to finish another week stronger, which would mark 12-straight weeks of gains, the longest winning streak ever.
And pros say though the move has been sharp, the uptrend is still firmly intact.
Kyu Oh | E+ | Getty Images
First, a warning: Buying the dollar is the trade du jour. As the U.S. economy flexes its muscles amid an increasingly uncertain global backdrop, more investors have jumped on the strong dollar bandwagon.
Weekly data from the Commodities Futures Trading Commission show hedge funds and other large speculators' positions have increased substantially in the past few weeks, and the net long dollar bet now stands at $35.81 billion, not far from its its highest ever.
Net shorts on the euro and yen grew larger as well.
Those crowded trades mean the dollar is vulnerable to a painful drop when momentum turns on any given day and trades unwind.
However, it doesn't change the logic for buying the dollar and the currency's trajectory.
"As the Fed steps away from ultra-loose policies, the dollar should gain against the chief beneficiaries of those policies, namely emerging market and commodity currencies," currency strategists led by Kit Juckes at Societe Generale wrote in a note this week.
That goes for the dollar against emerging markets' currencies, too.
"The jump in total debt levels in the emerging markets in recent years leaves them vulnerable to rising interest rates and a resurgent dollar," Juckes wrote.
In the third quarter, the dollar index shot up 7 percent, the biggest gain since the third quarter of 2008, when investors everywhere were scrambling for safe-haven assets as the financial crisis gripped the globe.
Lee Hardman, currency strategist at Bank of Tokyo Mitsubishi, found that after a strong quarterly performance, there's still scope for further gains.
"Looking back over the last 20 years, we found that similarly large quarterly gains have tended to be followed by further, although more modest, gains in the following quarter," Hardman wrote in a note this week.
"Technical momentum indicators have climbed to extremely overbought levels signaling a high risk of a near-term correction lower for the U.S. dollar before it resumes its uptrend."
