The US dollar is overbought and could weaken to recent lows as the next Fed meeting looms, strategist says

• The US dollar is overbought and could weaken amid expectations for a Fed hike in June, an FxPro strategist said.

• It has continued to rally in May, but it could decline back to recent lows soon.

• "Overbought dollars have also accumulated, which has become a concern for Treasury and central bank officials."

The US dollar has climbed over recent weeks but with could see weakness ahead of the Federal Reserve's June policy meeting, according to an FxPro strategist.

In a Tuesday note, Alex Kuptsikevich, FxPro senior market analyst, wrote that the dollar is currently overbought. The US Dollar Index has gained about 3.4% from its early May lows, and has hovered around 104.2 over the past four trading sessions.

That's because the odds of another Fed rate hike at the June 13-14 meeting have jumped to about 64% from nearly zero at the start of the dollar's last rally in early May, Kuptsikevich said.

Another rate hike, the strategist noted, could attract capital into the dollar after much of it fled during the regional banking crisis.

But the Fed may actually be getting more cautious about future rate hikes, he added as the symptoms of the banking crisis have eased without the "disease" itself being cured yet.

And the dollar is flashing technical signs it could see a sell-off soon, in FxPro's view, as it's entered the "over-bought territory" on the daily RSI, a price-movement gauge.

"Technically, the signal for the beginning of the correction will be a decline at the end of the day with a return to normal territory," Kuptsikevich said. "If this happens from the current level of 104.20, it would be a lower local high than the March peak above 105. In turn, such a reversal would be a reason to look for the Dollar Index to rewrite local lows in the coming weeks, approaching or falling below 100."

The last time the US Dollar Index edged near 100 was April 12.

The euro-dollar rate is trading at about the same level it was at the start of the year and one year ago, the strategist pointed out, while the dollar-yen rate is at highs not seen since last November.

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