To assess the sustainability of the USD strength, Bank of America Merrill Lynch Research looks at the real effective exchange rate (REER) during the last 50 years.
"The USD is historically very strong. Similar USD peaks in the past were the result of rare conditions and did not last. The recent USD peak seems more persistent, as a number of rare events have happened in sequence. A number of tail risks could keep the USD strong for now, but history suggests it is unlikely to persist in the longer term," BofAML notes.
"Technicals suggest a cycle top in the USD could be building due to a price-momentum divergence. However, the trend is still deemed up: the age of the divergence is young relative to past tops; a structurally bullish trend line break + retest in 2015-18; and no bearish breakdowns to confirm the divergence pattern and refute a bullish breakout," BofAML adds.