Recently, there has been an interesting phenomenon in the market: the back-and-forth in the US–Iran situation is directly influencing foreign-exchange trends. Last week, the US Dollar Index fell by 0.48%. Non-US-dollar currencies generally rebounded, with the euro up 0.34%. The logic behind this is actually worth thinking through.

First, let’s talk about the euro. Last week, EUR/USD rose by 0.34%. The main reason was that the market at one point became optimistic about the prospects for negotiations between the United States and Iran. Trump said that an agreement would very likely be reached in late April. Iran also, on the 17th, announced that it would open the Strait of Hormuz, and these developments made the market full of expectations for renewed talks. But the problem is that over the weekend, the situation suddenly flipped— the strait was closed again, the US seized Iranian ships, and Trump threatened to destroy Iran’s infrastructure. Iran also did not cooperate and refused to confirm that it would take part in the next round of negotiations. The two-week ceasefire agreement is set to expire on April 22; whether it can be extended is still unknown. This kind of repetition and reversal has put pressure on the euro. From a technical perspective, EUR/USD encountered resistance around 1.185. However, judging from the moving averages and the RSI, the bulls still have strength.

The yen is even more interesting. USD/JPY fell by 0.42%, but the driving force is not only the US–Iran situation; changes in the stance of the Bank of Japan have also played an important role. In his recent remarks, Ueda Kazuo did not mention an April rate hike at all. Instead, he emphasized the impact of the situation in the Middle East on the Japanese economy. The market’s expectation for a BOJ rate hike in April dropped directly from 50% to under 20%—and the shift has been quite fast. Economists now roughly see an even split on rate hikes in April and June, but most still believe action will be taken before the end of June.

One detail worth paying attention to: Japan’s Finance Minister Koyetsu Katayama (Koyetsu Katayama) recently warned that Japan is already prepared to take bold actions to support the yen. This suggests that the Japanese government still has some concerns about yen depreciation. If the central bank truly delays the rate hike, carry trades could become active again, and the yen could be pushed down to 162 or even higher.

From a technical perspective, USD/JPY is currently fluctuating repeatedly within the range of 157.5 to 160.5. The 21-day moving average is at 159.2. If the price can return to above this level, the 160 level may be tested again. Conversely, if downward pressure continues to hold the price below the moving average, the downside risk will increase. The first support is 157.5, and below that is the 100-day moving average at 156.9.

There remains disagreement in the market about the outlook for the US dollar. Some institutions believe that, driven by current optimism, the dollar will stay weak in the short term unless oil prices experience abnormal volatility or global stock markets make a major adjustment—otherwise, there is still room for depreciation. But other analysts insist that, based on fundamentals, interest-rate differentials, and structural demand, the medium- to long-term strength logic for the US dollar remains solid.

The key this week is the direction of the US–Iran situation and the Warsh hearing. If the hearing goes well, he is very likely to formally take office as the Fed Chair in May, which will directly affect market expectations for rate cuts. At the same time, you also need to keep monitoring the BOJ’s signals, because they directly determine the direction of the yen and USD/JPY. If the US–Iran situation escalates, the BOJ’s April rate-hike expectations will be further suppressed, and USD/JPY may test 160 again. Conversely, if the situation eases, USD/JPY will fall. The euro is the same way—it depends on whether the US–Iran negotiations can ultimately be restarted.