Three ways to profit from the soaring dollar

As the greenback soars to its highest levels of the year, one trader sees a couple of market areas that could ride the currency's coattails.

"I think we have to go with the ones that have been outperforming so far," said Frank Cappelleri, senior equity trader at Instinet, Wedsday on CNBC's "Trading Nation."

The IWM small-cap Russell 2000 ETF has already seen new highs on dollar strength. The IWM hit another intraday record on Thursday after reaching a closing record Wednesday.

"I will caution one thing" on the IWM, said Cappelleri. "The dollar is actually getting close to this resistance point ($93-$94 area) so that's obviously going to impede any real breakout attempts for the Russell if this continues like that."

The IWC micro-cap ETF should also catch favor from a higher dollar, according to Cappelleri. Like small caps, the micro-cap ETF traded at an all-time high Thursday. The ETF is up 8 percent for the year.

"The IWC has actually been performing better than small caps and we see this here over the last four months," he said. "It's more exposure to the dollar, obviously much more influenced by it."

The XRT retail ETF, Cappelleri's final pick for a dollar winner, has managed to break out through an inverse head-and-shoulders bottom. The pattern — which sees a low, a lower low, and a higher low — stretched from early March through to early May. The XRT broke out from that technical pattern to reach an intraday high on Wednesday not seen since Jan. 31.

Time will tell whether retail's breakout can continue, cautions Cappelleri.

Source: Bloomberg Pro Terminal

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