Recently, I’ve noticed a few interesting changes in the foreign exchange market. The market trend not long ago was still dominated by geopolitical factors.

Let’s start with the euro. This round of euro rally has definitely caught a lot of people’s attention. After the news of the US-Iran ceasefire agreement came out, EUR/USD surged for 5 straight days, and ultimately closed up 1.78%. All non-USD currencies rebounded along with it: the Australian dollar rose 2.47%, and the British pound rose 2.04%. It looks like risk-aversion sentiment eased temporarily, and the market has started repricing risk assets again.

However, the foundation for this euro rally is actually quite fragile. The final US-Iran talks didn’t lead to a substantive agreement, and Trump even threatened to blockade the Strait of Hormuz—this directly hit the market’s optimism. On top of that, expectations for the Fed to cut rates fell through again. Traders now almost don’t see any chance of a rate cut this year, with the probability of a rate cut only at 16%. This creates a paradox: the ECB might raise interest rates due to soaring energy prices, but the Eurozone’s economic growth itself carries downside risks—so rate-hike expectations can’t really hold up the euro.

Put simply, how far this euro rebound can go still depends on how the US-Iran situation develops. If the conflict escalates, the dollar, as a safe-haven currency, will attract funds again, and the euro will have to give back its gains. On the technical side, EUR/USD is consolidating around the 100-day moving average. Breaking above 1.181 is the key resistance; if it falls below the 21-day moving average support at 1.157, downside risk will increase.

The story with the Japanese yen is even more complicated. USD/JPY recently pushed up to the 160 level, but it also pulled back after the ceasefire news. The problem is Japan’s own difficulties are not small either—an explosion in oil prices means fuel subsidies cost 600 billion yen per month, and at most they can last for three months before funds run out. Against this backdrop, the probability of the Bank of Japan raising rates in April is actually declining, dropping from 60% last week to 44%. Once the central bank keeps interest rates unchanged, it’s practically certain that the yen will weaken.

So for USD/JPY right now, bullish momentum is still there: it remains above the 21-day moving average. If it breaks through the previous high of 160.46, upside room could open further. But all of this still hinges on how geopolitical conditions evolve. This week, the focus should be on the remarks by the Bank of Japan governor and the latest updates on the US-Iran situation—these two factors will directly affect the yen and euro’s subsequent performance.