The dollar is rebounding thanks to eurozone weakness.

On Monday, declining crude oil prices and rising US stocks helped push the dollar to a six-month high against the euro. Today, the euro lost more ground against the dollar. It fell to $1.4900 after a new report showed that the US trade deficit contracted in June.

Can the dollar continue its climb? Andrew Gordon in Investor’s Daily Edge says the short-term outlook is good for the buck. It could rally by as much as 15 percent. But expect formidable resistance soon. More from Andrew below…

The European Central Bank (ECB) last week held the line on interest rates. So did the Fed.

Just a couple of weeks ago the betting was on the ECB raising rates before the Fed did. The ECB’s recent stand is much less hawkish. The Fed could very well end up raising rates before Europe does.

All this has boosted the falling dollar. Since the beginning of 2002, the dollar has lost an astonishing 40 percent of its value. It has had a good month and a great week - its best week in 3.5 years. The chart shows the dollar bursting through its 10-month moving average - but can it continue to rise?

Over the next couple of weeks - I believe so. But it will soon be facing formidable resistance. As you can see from the chart, its long-term trend line and its 20-month moving average has merged. If the dollar can move above it, it’ll be a significant bullish indicator.

It isn’t much of a turn-around yet - just a 7 percent upward move. It doesn’t compare yet with the much more significant dollar bounce of 2005 (which, by the way, failed to break the dollar’s long-term downward trend). This current bounce is still in its early stages.

It’s much too early to say we’re seeing 2005 all over again. But I see the dollar moving past its next resistance and testing its previous low at just above 80 - which would amount to a 15 percent rally.

A stronger dollar won’t help exporters and commodity producers. But it would help retailers who import and manufacturers whose input costs have been soaring (companies like Dow Chemical <NYSE:DOW>) because of the dollar’s weakness. In the next couple of months, these types of companies are your best bets.

Source: Europe Rides to the Dollar’s Rescue