EUR/USD – Smart Money Analysis: The Dollar Could Strengthen at the Start of the Week

The EUR/USD pair continues the upward move that began after two liquidity sweeps, marked on the chart by red lines. Imbalance 17 contained the bulls' advance for a long time and eventually became fully invalidated. Last week, two new imbalances—20 and 21—were also formed. Both are bullish. The nearest imbalance could theoretically generate a signal as early as today. Imbalance 21 is approximately 80 points wide, which is quite substantial given the level of trader activity in recent weeks. Therefore, the price may enter the imbalance 21 zone and spend considerable time there. It could even fall to 1.1589 before beginning a new advance and forming a bullish signal. In any case, market sentiment remains bullish, which means traders should be looking for buy signals.

In my view, the fundamental backdrop continues to fully support the bulls. First, it is clearly visible on any chart that the euro began its advance from relatively low levels compared with its average price over the past year. Second, the market is no longer expecting the FOMC to tighten monetary policy in September. Third, the market has begun to question whether the Fed under Kevin Warsh can tighten monetary policy at all. Fourth, U.S. economic data have recently been disappointing. Fifth, geopolitical developments are no longer supporting the bears or the dollar. Sixth, the ECB may tighten monetary policy once again this autumn. Seventh, the U.S. Treasury has decided to increase its purchases of long-term bonds, reducing demand for the dollar. Eighth, a new trade war between the United States and Canada, as well as between the United States and China, could begin in the near future. Therefore, I see no reason for a bearish advance.

As I warned in recent weeks, if the labor market once again produces a weak result, this will be a sufficiently strong reason for the Fed to abandon a rate hike. At present, the condition of the U.S. labor market is one of the key reasons for the dollar's decline, as it severely constrains the Fed's ability to act. The annual Nonfarm Payrolls report will be released on Friday. If it comes in below expectations, this will provide another reason for the U.S. currency to weaken.

Let me remind you that expectations regarding Fed monetary policy are always just expectations, and they can change in response to geopolitical developments or economic data. The market may anticipate easing or tightening and price those expectations in, as we saw between June 17 and June 24. However, this does not mean that those expectations will materialize. The latest U.S. labor-market data showed weak results, inflation slowed, and GDP growth lost momentum. These three factors have raised doubts about FOMC rate hikes not only in September but also in the foreseeable future. In my view, the bears' only opportunity at present lies in a new escalation in the Middle East. However, Donald Trump does not appear inclined toward military escalation. He now wants to wear Iran down through sustained pressure.

The current technical picture points to a fairly high probability of continued bullish momentum. The bearish imbalance 17 was tested, but the reaction to it was weak, and the pattern is now invalidated. The bullish imbalance 19 remains untested. The new bullish imbalance 20 also failed to provide traders with a buy signal. Another bullish imbalance 21 has formed and could generate a signal this week. At present, the bulls have much stronger positions and prospects than the bears.

There was no significant economic news on Monday, but plenty of news and events are scheduled throughout the rest of the week. Therefore, traders can expect potentially strong price movements over the next four days.

The bulls still have an enormous number of reasons to attack in 2026, and even the outbreak of war in the Middle East has not reduced them. Structurally and globally, Trump's policies, which led to a significant decline in the dollar last year, have not changed. At present, I see no serious factors supporting the U.S. currency despite the FOMC's formally hawkish stance. Geopolitical developments, which supported demand for the U.S. currency for much of the first half of 2026, can no longer do so. The conflict in the Middle East remains unresolved, but there has been no new fighting from either Iran or the United States.

On August 25, the economic calendar contains five releases, none of which I would consider important. The impact of the economic backdrop on market sentiment on Tuesday is expected to be extremely weak or nonexistent.

In my view, the pair remains in the process of forming a bullish trend. The fundamental backdrop shifted sharply in favor of the bears six months ago, but the trend itself cannot be considered invalidated or complete. Therefore, the bulls may well continue their advance following the two liquidity sweeps of clearly defined lows.

At present, bullish traders have support from both imbalance 20 and imbalance 21. A new buy signal could form this week. I consider 1.1797 and 1.1850 to be the upward targets for the euro.