Jan 21 (Reuters) - The dollar, which has fallen heavily in the last few days, is likely to rise further this year and stretch far above the 18-year peak reached in December.

There is strong cause to expect bigger gains for the dollar which is underpinned by a robust technical uptrend and supported by its reserve status, providing it with support during a period where protectionist policies are likely to determine the direction of currencies.

Many of the currencies negatively affected by the risk of a trade war have slumped and crucially those of BRICS nations seeking other ways to mitigate the power of the U.S. currency have already dropped to record lows or towards them.

Their slumps are undermining many other emerging and less liquid currencies and all-time lows beckon for an increasing number of currencies that will stoke risk aversion fuelling demand for the Greenback.

Should central banks opt to intervene and maintain FX reserves, the rebalancing of reserves - which usually means selling EUR/USD - will support the dollar. If reserves are allowed to dwindle, investors may worry about another crisis of the kind that have crushed these currencies in the past.

The rally that was stretched above the peak of the 20-month Bollingers when the trade-weighted dollar hit an 18-year high in December high has undergone a minor correction that could lay the foundation of a bigger rise.

The dollar rose almost 8% after a minor correction between October 2022 and July 2023, and could repeat that feat this year.

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(Jeremy Boulton is a Reuters market analyst. The views expressed are his own, editing by Ed Osmond)

((jeremy.boulton@thomsonreuters.com))