Recently, I noticed a quite interesting movement in the forex market. Last week, the US-Iran situation became the focus of the market; after the euro surged, it then pulled back, and the entire trend was quite volatile.

First, let's talk about the euro. Last week, EUR/USD rose for five consecutive days, with a gain of 1.78%, mainly due to news of the US-Iran ceasefire agreement. But then you see Trump started making tough statements again, threatening to block the Strait of Hormuz, and market sentiment immediately changed. That’s also why the euro surged then began to decline.

From the central bank perspective, the European Central Bank's energy price surge has pushed up inflation expectations, with the market expecting two rate hikes this year, and there are even reports that the probability of a rate hike at the April meeting has already reached 50%. But the problem is, the economic growth outlook for the Eurozone has downside risks, so the rising rate hike expectations are not supporting the euro. To put it simply, whether the euro can continue to strengthen still depends on how the US-Iran situation develops.

The Fed's rate cut expectations have also eased. Currently, the market generally believes the Federal Reserve will not cut rates this year, with only a 16% chance of a rate cut. This definitely suppresses the sustainability of the euro's rally. On the technical side, EUR/USD is oscillating near the 100-day moving average; if it can hold above this line, further upside is possible, with resistance at 1.181. Conversely, if it continues to be pressured, support is around 1.157.

Looking at the yen, USD/JPY briefly broke through the 160 level last Monday, but after the ceasefire agreement was announced, it also pulled back. Interestingly, Japan faces significant fiscal pressure. Due to soaring oil prices, the Japanese government spends about 600 billion yen monthly on fuel subsidies, and funds could run out in three months at most. Under these circumstances, market expectations for a rate hike by the Bank of Japan in April dropped from 60% to 44%. If the central bank chooses to keep rates unchanged, the yen will likely continue to weaken.

This week’s key factors are still the US-Iran situation and the Bank of Japan governor’s speech. If tensions continue, USD/JPY could once again surge toward 160. Technically, USD/JPY has already broken above the 21-day moving average, with bullish momentum still strong. If it breaks the previous high of 160.46, there’s room for further gains, with resistance at 161.9. If it rises sharply then pulls back, support is around 157.5.

Overall, the core of this week’s market movements remains the geopolitical and central bank policy game. The euro’s rally is not very solid, mainly depending on whether the US-Iran situation can truly ease.