The foreign exchange market has been quite interesting lately. Last week, the US Dollar Index rose by 0.69%, while non-US dollar currencies collectively weakened. Among them, the Japanese yen fell by 0.63%, the euro also fell by 0.55%, and the Australian dollar dropped an even more severe 2.18%. But the development drawing the most attention is still that USD/JPY has broken through the key exchange-rate level of 160.

Let’s first talk about the yen. The 160 level is not an unfamiliar number for Japan’s authorities; last year, they even carried out foreign exchange intervention because of this exchange-rate level. After USD/JPY broke through that line of defense last week, Japan’s Finance Minister Junichi Mimura immediately stepped out to comment, saying that if this situation continued, decisive measures would have to be taken soon. This sounds like a warning shot to the market—hinting that intervention could be right around the corner.

According to estimates from Mitsubishi UFJ Morgan Stanley Securities, if Japan were really to spend 3 trillion yen to buy yen, it could theoretically strengthen the yen by 4 to 5 points. But the problem is that once the situation in the Middle East escalates again, this appreciation effect could disappear within days. Because the root cause of the yen’s current depreciation is actually very clear: a stronger US dollar and surging oil prices. The logic chain is that worsening Middle East conflict leads to higher oil prices, which then hurts Japan’s trade conditions, increases demand for the US dollar, and causes the yen to collapse. Okasan Securities even predicts that if Japan does not act to intervene, USD/JPY could climb to 162.

Now let’s look at the euro. Last week, EUR/USD fell by 0.55%, mainly because the escalation of the US-Iran conflict attracted safe-haven flows into the US dollar. After Iran refused the ceasefire agreement, oil prices rose again, and inflation risks kept climbing. The market has already given up expectations for the Federal Reserve to cut rates this year, and it has even slightly priced in the possibility of rate hikes. While the European Central Bank is also considering rate hikes, the market is even more concerned about the impact of rising energy prices on the eurozone economy—so EUR/USD remains under sustained pressure.

From a technical standpoint, EUR/USD is still below the 21-day moving average, with the bears holding the upper hand. The support level to watch is the prior low of 1.139. If it can effectively break above the 21-day moving average, resistance would then be seen at the 100-day moving average of 1.169. On the USD/JPY side, after breaking through 160, there is more room for upside. Resistance lies at the prior high of 161.95. If support at the 21-day moving average of 158.6 is lost, then you would have to look at 154.5 next.

The focus this week is still these two: how the Middle East situation will evolve, and the US March non-farm payroll data. If non-farm payrolls come in below expectations, it could be favorable for EUR/USD in the short term. But as long as geopolitical tensions don’t cool down, the US dollar will most likely remain strong, and pressure on the EUR/USD exchange rate will persist. As for the yen, the key is whether the Japanese government will really intervene, and whether the Middle East conflict will escalate further. If the situation worsens and oil prices keep surging, USD/JPY could continue to rise; conversely, if Japan intervenes, the exchange rate could fall sharply. For this week’s FX action, the Middle East and non-farm payroll data are the two biggest variables.