BUZZ-COMMENT-Dollar may pause ahead of bigger gains

Jan 7 (Reuters) - The rally in the dollar, which reached an 18-year peak last month, is stretched and some consolidation or correction is warranted, but this period of adjustment may lay the foundation for bigger gains.

In December the trade-weighted value of the dollar reached 133.50, marginally above the 133.35 high attained in 2022 from where the last correction unfolded.

That shallow pullback, which amounted to just 23.6% of the dollar's surge since 2011, was immediately followed by renewed gains which revealed the underlying strength of the trend.

Despite that, traders and investors have not returned to the massive positions that resulted in the overcrowded situation that halted the dollar rally. Hence, a period of adjustment now may be smaller than that two years ago, yet the overbought situation is certainly reason to expect a pause.

The peak of the 20-month Bollinger Bands is 132.18 and a pullback under that spot would be healthy for the trend. Given the 8% gain in the dollar's value since it bottomed in July 2023, a correction may not be much greater than 2% toward 131.58, which is 23.6% of the rise between July 2023 December 2024.

From that point the dollar could rise between 4 and 8 percent, with a bigger gain perhaps more likely given the current lack of speculation on a rise and the likelihood such speculation would be reduced during any correction phase

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(Jeremy Boulton is a Reuters market analyst. The views expressed are his own)

((jeremy.boulton@thomsonreuters.com))