With the books closed on 2007, analysts are looking ahead to 2008.  With regard to the Dollar, market sentiment is surprisingly upbeat, with expectations of a 5-10% appreciation.   In blogging circles, the word "oversold" has been cropping up. Commentators cite a mix of technical and fundamental factors in their reasoning. Some economists expect the US trade deficit to decline marginally in 2008 and GDP to grow at 2-4%. These fundamentals, they argue, support a higher Dollar valuation. The price of oil has been singles out as a pivotal input in the US economic forecast.  If the price declines by 20% or more, it could offset the still-unfolding housing crisis and provide much-needed support for the faltering economy.  he EU could also take steps to support a Dollar appreciation.  EU Government and Central Bank officials have voiced concern over the Euro’s rise, and could intervene on its behalf via a change in interest rates.  BloggingStocks reports:

"So far the ECB’s deeds have not matched their words, but one gets the sense the ECB will take actions to strengthen the dollar and weaken the euro in 2008."

Read More: Experts see mild dollar rally in 2008 if economy holds up