Last week, the foreign exchange market was lively again. Once the news of a ceasefire between the US and Iran came out, non-US currencies all rebounded. I looked at the data, and the dollar index fell by 1.49%, the euro rose by 1.78%, and the Australian dollar even increased by 2.47%. But can this rebound last? I think it still depends on how the US-Iran situation develops.

On the euro side, it rose for five consecutive trading days mainly due to expectations of a ceasefire agreement. But the turning point came—Trump threatened to block the Strait of Hormuz, and now the market's bets on a Federal Reserve rate cut have fallen back. Currently, most expect the Fed to hold rates steady for the year, with only a 16% chance of a rate cut. Meanwhile, the European Central Bank (ECB) is expected to raise rates twice this year due to soaring energy prices, with a 50% chance of a rate hike at the April policy meeting. However, this rate hike expectation hasn't suppressed the euro; the main reason is concerns about economic growth in the Eurozone. I think in the short term, the euro to RMB exchange rate, including EUR/USD performance, ultimately depends on whether the US-Iran situation continues to escalate. From a technical perspective, EUR/USD is fluctuating around the 100-day moving average. If it can hold above this line, there might still be a chance to test the 1.181 resistance level.

The yen is even more interesting. USD/JPY once broke through 160 but fell back after the ceasefire news. The problem is that Japan is currently under pressure to subsidize fuel costs, spending 600 billion yen per month, and will run out of money in at most three months. So, the likelihood of the Bank of Japan raising interest rates in April is decreasing. The overnight swap market shows the probability of a rate hike has dropped from 60% last week to 44%. If the central bank does not raise rates, the yen will continue to depreciate. This also means that in the EUR/RMB exchange rate trend, yen fluctuations will have an indirect impact. From a technical standpoint, USD/JPY is currently above the 21-day moving average, and the bulls are still relatively strong. If it breaks through the previous high of 160.46, it may continue to rise, but if it falls back, the support level is around 157.5.

This week’s key focus is whether the US-Iran situation will continue to worsen and the speech by the Bank of Japan governor. If the situation eases, safe-haven funds may flow out of the dollar, which would be positive for the euro and other non-US currencies. This could also influence the EUR/RMB exchange rate. Conversely, if not, the dollar may continue to be favored.