Last week, interesting shifts took place in the foreign exchange market. The U.S. Dollar Index fell 0.48%, while non-USD currencies strengthened across almost the board. Among them, the euro rose 0.34%, the yen gained 0.42%, and the Australian dollar was the strongest, jumping 1.5%.

Let’s start with the euro. Last week, EUR/USD rose 0.34%, mainly driven by the U.S.-Iran situation. At one point, the market expected that the U.S. and Iran would soon reach an agreement. Trump said it was likely that he would finalize a deal with Iran in late April. Iran also announced on the 17th that it would reopen the Strait of Hormuz, and that news directly weighed on the dollar, lifting the euro as a result. However, this optimistic sentiment didn’t last long—over the weekend, the situation suddenly reversed. The Strait of Hormuz closed again, the U.S. seized Iranian ships, and Trump began threatening to destroy Iran’s infrastructure. Iran now refuses to confirm participation in a new round of talks, and the two-week ceasefire agreement is set to expire on the 22nd—whether it will be extended is still unknown.

From a technical perspective, EUR/USD met resistance around 1.185 after pushing higher. Both the RSI indicator and moving averages show that bullish momentum is still fairly strong, so a further attempt to test this level again is not ruled out. If it breaks down, the 100-day moving average at 1.170 is the first support. Further below, the 21-day moving average at 1.163 is the next support.

Market views on the dollar are split into two camps. Mitsubishi UFJ believes that under the currently dominant optimistic sentiment, the dollar will remain weak in the short term. They say the dollar would have room to depreciate further unless crude oil prices experience a non-linear surge or global stock markets undergo a significant pullback. But the view from BNP Paribas (Crédit Agricole) is different. Based on fundamental valuation premium, interest-rate differential advantages, and structural demand, they believe the medium- to long-term logic of a strong dollar still holds.

Next, let’s look at the yen. Last week, USD/JPY fell 0.42%, mainly because U.S.-Iran tensions eased, along with a sharp drop in expectations for the Bank of Japan to raise rates in April. The recent remarks by Ueda Kazuo did not send a signal of a rate hike this month; instead, he emphasized how Middle East developments would impact Japan’s economy. Overnight index swaps show that the market now expects the probability of a Bank of Japan rate hike in April to be below 20%, down from 50% last week.

So what does this change mean? If the Bank of Japan delays a rate hike, carry trades would regain momentum. That would put pressure on the yen’s exchange rate, and USD/JPY could surge toward 162 or even higher. Japanese Finance Minister Yoshiro Katayama has already issued a warning after discussions with U.S. Treasury Secretary Bessent, saying she is prepared to take bold action to support the yen.

Technically, USD/JPY has been trading in a range between 157.5 and 160.5. If it can reclaim the 21-day moving average at 159.2, it may once again challenge the 160 level. Conversely, if it remains capped below the 21-day moving average, the probability of downside would increase. The first support would be at 157.5, and the second support would be at the 100-day moving average of 156.9.

This week’s focus remains on the U.S.-Iran situation and the Warsh hearing. If Warsh performs well in the hearing, he is very likely to officially take office as the Federal Reserve Chair in May, which would affect market expectations for rate cuts. If the U.S.-Iran situation escalates, it would further suppress expectations for the Bank of Japan’s rate hikes, and USD/JPY could also test 160 again. On the other hand, if tensions ease, USD/JPY would fall, and the euro may also show some strength. In short, this week you should closely monitor these two variables.