The recent volatility in the foreign exchange market is indeed worth paying attention to. Last week, the repeated negotiations between the US and Iran directly suppressed the dollar, with non-US currencies like the euro and yen rising collectively, among which the Australian dollar had the largest increase, rising by 1.5%.

First, let's talk about the euro. Last week, EUR/USD rose by 0.34%, mainly because the market was once optimistic that the US and Iran would reach an agreement soon, leading to decreased demand for the dollar as a safe-haven currency. Trump said it was very likely that negotiations with Iran could be settled by late April, and Iran also temporarily opened the Strait of Hormuz, suggesting a easing of tensions. But there was a sudden reversal over the weekend— the strait was closed again, the US seized Iranian ships, and Trump even threatened to destroy Iran’s infrastructure. Now Iran refuses to confirm attendance at a new round of negotiations, and the two-week ceasefire agreement is set to expire on April 22, with no certainty whether it will be extended.

This back-and-forth has put pressure on the euro. From a technical perspective, EUR/USD surged and then retreated, encountering resistance around 1.185. Although moving averages and RSI indicators still show relatively strong bullish momentum, if the US-Iran situation worsens again, the euro may continue to decline. The first support level is the 100-day moving average near 1.170, and further down is around 1.163.

Regarding the outlook for the dollar, analysts are divided. Mitsubishi UFJ believes the dollar will continue to weaken in the short term unless oil prices jump or global stock markets experience a significant correction, which would limit its downside. Conversely, Crédit Agricole sees the opposite; they believe that based on fundamental premium, interest rate differentials, and structural demand, the dollar’s medium- to long-term strength remains solid.

The story with the yen is even more interesting. Last week, USD/JPY fell by 0.42%, partly due to easing US-Iran tensions, but more importantly because the Bank of Japan’s rate hike expectations have significantly declined. Ueda and Kuroda have recently not signaled any rate hikes in April and instead emphasized the impact of Middle East tensions on the Japanese economy. Overnight index swaps now show that the market estimates less than a 20% chance of a BOJ rate hike in April, down from 50% earlier this week.

If the BOJ actually delays the rate hike, carry trades will become more active again, and the yen could be pushed to 162 or even higher. Japanese Finance Minister Shōzō Katō recently met with U.S. Treasury Secretary Janet Yellen and warned that she is prepared to take bold actions to support the yen. From a technical standpoint, USD/JPY is still fluctuating between 157.5 and 160.5. If it can rise back above the 21-day moving average at 159.2, it will attempt to test the 160 level again.

This week’s key factors are still the US-Iran situation and Warsh’s hearing. If Warsh performs well, it’s very likely that he will officially become the Federal Reserve Chair in May, which will directly influence market expectations for rate cuts. If the US-Iran situation escalates, the market will further push down expectations for a BOJ rate hike in April, and USD/JPY could surge back to 160. Conversely, if tensions ease, the dollar may continue to weaken against the yen. The same applies to the euro: escalation favors the dollar and is unfavorable for the euro. Overall, this week’s market will likely swing around geopolitical developments and central bank expectations.