The foreign exchange market has been relatively calm recently, but the logic behind it is quite interesting. Last week, as soon as the US-Iran ceasefire agreement came out, all non-US dollar currencies rebounded together: the euro rose by 1.78%, the Australian dollar surged by 2.47%, and the U.S. Dollar Index fell by 1.49%. However, it’s hard to say how long this kind of rebound can last.

Let’s start with the euro. EUR/USD rose for five straight days. At its highest point, it looked promising, but the issue is that the US-Iran negotiations didn’t result in any substantive agreement. Trump turned around and threatened to block the Strait of Hormuz—this immediately doused market hopes. Expectations for a rate cut by the Federal Reserve were also suppressed. At present, the market basically doesn’t expect a rate cut this year, with the probability of a rate cut at only 16%.

Meanwhile, over at the ECB, soaring energy prices have pushed up inflation expectations. The market now expects the ECB to raise interest rates 2 times within the year, and the probability of a rate hike at the April policy meeting has even climbed to 50%. It sounds like the ECB is going to hike rates, so the euro should rise, right? But there’s a paradox here—while growth expectations in the euro area are moving downward, rate-hike expectations are actually weighing on the euro’s performance. Put simply, in the short term, the euro still has to read the mood of the US-Iran situation: if tensions ease, the euro will have a chance to climb; if the situation escalates, risk-averse capital will flow into the U.S. dollar. From a technical perspective, EUR/USD is oscillating near the 100-day moving average. If it manages to hold above that level, it could keep trending higher, with a target around 1.181. But if it’s capped below the moving average, the downside risk will increase, with support around 1.157.

The situation for the Japanese yen is even more complicated. USD/JPY once broke through the 160 level, but after the ceasefire agreement was announced, it fell back immediately, with the weekly close down 0.24%. But behind this lies a major problem: Japan’s monthly fuel subsidies amount to 600 billion yen, and at this pace the funds would run out in three months. The higher oil prices go, the greater the pressure on Japan’s finances. This directly affects the policy room for the Bank of Japan, with the probability of a rate hike in April falling from 60% last week to 44%. Insiders say the central bank may slow the pace of rate hikes due to expectations of economic shocks. If the central bank ultimately chooses to stand pat, the yen will certainly continue to weaken. Currently, USD/JPY is standing above the 21-day moving average, and the bulls still have strength. If it breaks through the previous high of 160.46, it could open up more upside room, with resistance at 161.9. But if it rises and then pulls back, support is around 157.5.

These changes also indirectly affect the EUR/CNY exchange rate trend. The strength or weakness of the U.S. dollar directly determines the performance of non-US dollar currencies. If the euro continues to rebound, the pressure on the RMB relative to the euro will increase. From this perspective, the EUR/CNY exchange rate ultimately still depends on how the US-Iran situation evolves. This week, key points to watch are developments in the US-Iran situation and the U.S. March PPI data. These two factors may redefine the direction of the EUR/CNY exchange rate. If tensions continue to stay tight, the dollar will once again become the preferred safe haven, and the EUR/CNY exchange rate may face downward pressure.