The foreign exchange market has been quite interesting lately. The European, American, and British central banks have all simultaneously released hawkish signals, but can the euro’s current rally continue? Looking at last week’s data, I found that the U.S. Dollar Index actually fell. The euro, Japanese yen, and British pound have all been rising—there’s quite a complex logic behind it.

Last week, both the Bank of England and the European Central Bank kept interest rates unchanged, but their remarks leaned hawkish. The market now estimates the Bank of England has about a 60% chance of raising interest rates in April, and the ECB’s interest-rate-hike expectations are also about 50%. It sounds like the euro should rise, but the problem is that Fed Chair Jerome Powell is also sending hawkish signals, which creates a kind of tug-of-war. Still, judging by last week’s price action, it seems the signals from the BOE and ECB outweighed those from the Federal Reserve.

There’s a key variable here, though—the Middle East situation. Trump’s last ultimatum to Iran has led the market to reprice expectations for Federal Reserve policy, and the market is no longer expecting rate cuts this year. If U.S.-Iran tensions continue to escalate and oil prices rise, expectations for Fed rate hikes will move higher as well, which would favor the U.S. dollar. In that case, will the euro keep falling? I think it depends on how the Middle East situation unfolds.

On the technical side, EUR/USD is still below the 21-day moving average, and bearish strength remains relatively strong. The support level is the prior low at 1.139. If it can break above the 21-day resistance line, the next target would be the 100-day moving average at 1.168.

The situation for the Japanese yen is even more interesting. Last week, USD/JPY first fell and then rose. The Bank of Japan didn’t raise rates, and the governor said that soaring oil prices make policy judgments more difficult. After all, Japan is highly dependent on energy imports, and higher oil prices place significant pressure on Japan’s economy. The market estimates the Bank of Japan’s probability of a rate hike in April is also around 60%, but some analysis suggests that even if it does hike, it won’t change the situation in which the yen is being sold off.

This week, watch the Middle East situation and Japan’s CPI data. If USD/JPY breaks above 160, the Japanese government may intervene verbally—so be careful of a surge followed by a pullback. On the technical side, USD/JPY is still above the 21-day moving average, and bullish momentum is stronger. The next target is around the prior high at 162.