The dollar began an eventful week on a weaker note. The Dollar Index fell 0.2% on Monday, marking its second consecutive day of losses. The looming U.S. government shutdown, with both political parties holding firm to their positions, could significantly affect the strength of the dollar in the short term. Several important U.S. economic releases are also expected this week, culminating in Friday's monthly employment report.

The prospect of a government shutdown, hanging over the U.S. economy like a Damocles' sword, adds considerable uncertainty to the currency markets. Traders, who traditionally seek safety during turbulent periods, may begin shifting capital into more stable assets, which is already putting direct pressure on the dollar. Delays in funding government programs, a reduction in the federal workforce, and the resulting decline in consumer activity are all factors that could weaken U.S. economic performance.

This week, special attention is focused on the release of key macroeconomic data, particularly the employment report. These figures will serve as an important indicator of labor market conditions and the overall health of the economy. If the data come in weaker than expected, the negative impact of a potential shutdown could be amplified, leading to further dollar weakness. Conversely, strong employment numbers could partially offset concerns and provide short-term support for the U.S. currency.

The yen is leading gains against the dollar, with Japan set to release its own economic data and host central bank speeches. In addition, the ruling party will select a new leader this Saturday. Traders will be watching closely to see whether these events influence expectations of a Federal Reserve rate cut or a Bank of Japan rate hike. Either of these scenarios—or both—will impact the dollar-yen exchange rate.

The dollar's recent rally was driven by fading investor expectations of future Fed rate cuts. Fed Chair Jerome Powell recently reaffirmed his view that policymakers likely face a challenging path ahead, as labor market and inflation outlooks remain vulnerable to risks, which reduced expectations of monetary policy easing.

As for the current technical picture of EUR/USD, buyers now need to target the 1.1750 level. Only then will a test of 1.1780 become possible. From there, the pair could move up to 1.1820, though achieving this without support from major players would be quite difficult. The ultimate target lies at the 1.1845 high. In case of a decline, I expect strong buyer activity only near 1.1705. If no one steps in there, it would be better to wait for a retest of the 1.1670 low or to open long positions from 1.1650.

As for GBP/USD, pound buyers need to break through the nearest resistance at 1.3460. Only then will a move toward 1.3500 be possible, though breaking above this level will be quite challenging. The ultimate target lies at 1.3534. If the pair falls, bears will try to regain control at 1.3410. A successful breakout below this range would deal a serious blow to bullish positions and push GBP/USD down to 1.3370, with the prospect of extending the decline to 1.3330.