Alex Green, Chief Investment Strategist for Investment U, knows the dollar’s in the gutter and contrary to popular opinion, thinks it has nowhere to go but up.

Alexander Green (Investment U):

We all know why the dollar is in the cellar right now. We also know why it’s expected to continue right through to the basement floor:

• Massive budget and trade deficits.
• Ultra-low interest rates. (Zero on the short end.)
• $59 trillion in unfunded liabilities for Social Security, Medicare and Medicaid.
• Bernanke conjuring extra trillions out of thin air to buy Treasuries and mortgage-back securities and patch various holes in the U.S. economy.

There is no reason to believe any of these problems will vanish in the months ahead. Yet the dollar will soar in 2010. Here’s why…

Two Reasons for a Dollar Rebound

There are two main forces that could drive the dollar higher:

• All the problems mentioned above are already well recognized and priced into the greenback.

• Dollar psychology is overwhelmingly bearish. Just as 10 years ago, investors couldn’t imagine Internet stocks doing anything but soaring higher. Five years ago, they couldn’t imagine real estate doing anything but barreling down the same one-way street. Record lows for the dollar are coinciding with enormous confidence that the dollar has nowhere to go but down.

When extreme valuations are accompanied by unbridled optimism or abject pessimism, it virtually always marks a turning point – and an opportunity. This is no exception.

Commentators seem to forget that all currency values are contingent. You can’t just look at fundamentals in the United States. You have to look at them abroad, too.

And there isn’t much out there right now that’s terribly positive…

Click here for the rest of Mr. Green’s analysis at Investment U.