Dollar Continues to Weaken

The U.S. Dollar Index (DXY) declined by 0.31% to 97.14 points, while the EURUSD advanced 0.50% to 1.17910. The recent upside momentum suggests a long-awaited acceleration toward the extreme target zone of 1.19500–1.20500. Since August 6, the pair had been confined within a sideways range of 1.16000–1.17000. The breakout above resistance, triggered by weak Nonfarm Payrolls data, was followed by a week-long retest. With this week’s move toward 1.18000, the breakout now appears confirmed, leaving the path higher open.

The main factor shaping Dollar sentiment is the ongoing legal battle over Federal Open Market Committee (FOMC) member Lisa Cook. U.S. President Donald Trump is seeking to remove her in an effort to gain greater influence over the Federal Reserve (Fed) and accelerate rate cuts. On Sunday, the Department of Justice petitioned the Federal Appeals Court to lift the injunction blocking Cook’s dismissal. The motion was denied on Monday, but traders expect Trump may escalate the case to the Supreme Court before the Fed’s meeting this week.

At the same time, the Senate narrowly confirmed Stephen Miran to the FOMC by a 48–47 vote on Monday. Appointed by Trump, Miran’s arrival strengthens the dovish camp within the Committee. Combined with weakening labour market data and the sharp decline in August’s Producer Price Index (PPI) inflation, this increases the likelihood of a dovish outcome from the Fed.

Technically, the EURUSD has already cleared its critical resistance at 1.17000 and is approaching the extreme target zone at 1.19500–1.20500. A rally toward 1.19500, or a further 1.5% from current levels, could unfold at any time, potentially catching traders off guard if it develops before the Fed’s decision.

Attention now turns to Tuesday’s U.S. retail sales release, expected to slow to 0.2% MoM from 0.5%. If forecasts are confirmed, the case for more aggressive Fed easing would strengthen, further pressuring the Dollar.

Investor positioning remains unchanged. The WisdomTree Bloomberg US Dollar Bullish Fund (USDU) recorded neutral flows last week, leaving $12.8 million in long Dollar exposure, sharply reduced from the $30.3 million in early August. Renewed inflows would suggest fading EURUSD momentum, while further outflows would support the case for a sustained rally higher.

From a technical perspective, the decisive break of the 1.16000–1.17000 range, followed by a successful retest and acceleration toward 1.18000, confirms the bullish structure. The key risk is a potential political surprise at the Fed meeting, should policymakers push back with a hawkish tone against political pressure.