Amid an ongoing Iran conflict that’s keeping the Strait of Hormuz effectively closed, elevated oil and gas prices are heightening eurozone inflation risks, prompting hawkish signals from ECB officials like Joachim Nagel, who indicated a possible rate hike as early as April if the outlook worsens. At the same time, soaring energy costs pose a growing drag on European growth and recovery efforts. Escalating threats—Trump warning of obliterating Iran’s power plants if the strait isn’t reopened, and Iran vowing retaliation against US and Israeli energy assets—continue to fuel supply disruption fears. Over the next 1-2 weeks, the euro is likely to face downside pressure against the dollar if oil stays high and headlines emphasize risks rather than de-escalation, though potential ECB tightening should cap any sharp falls. Analyst views have shifted more hawkish ahead of the March 20-21 period, with some now eyeing an April hike, while key upcoming Eurozone data includes flash PMIs, consumer confidence, ECB inflation expectations, and German IFO and GfK surveys.

The Japanese yen continues to weaken modestly, with USDJPY pushing back toward 160 despite renewed verbal intervention warnings from top official Mimura, who cited speculative oil price moves tied to Middle East tensions as a key driver of FX volatility and stressed authorities’ readiness to act decisively against excessive swings. This reflects heightened official concern over oil-driven flows pressuring the yen, given Japan’s heavy energy import reliance and limited yield support compared to other G-10 currencies. Following the BoJ’s recent hold at 0.75% with a data-dependent tightening bias, the yen remains highly sensitive to oil prices, inflation, and geopolitical headlines in the near term, with limited recovery expected unless crude falls sharply or the BoJ turns more hawkish; key data like February CPI (likely softened by subsidies) and March PMIs will be in focus this week.

The Australian dollar is down today, slipping below its 50-day moving average amid a strong US dollar and falling Asian equities, though its broader bullish structure remains intact. Powerful tailwinds from surging Australian 10-year bond yields (above 5%, multi-year highs) and rising commodity prices—fueled by Middle East tensions and higher oil/gas—are boosting the AUD’s rate advantage, improving terms of trade, and attracting inflows. Despite occasional risk-off pressure, the medium-term outlook stays constructive thanks to elevated carry, a hawkish RBA bias (with markets pricing in further hikes, possibly as soon as May), and commodity support. Over the next 1–2 weeks, AUDUSD should trade with a mild upside tilt within the 0.69–0.72 range, with dips well bought on high domestic yields and RBA tightening expectations, while upside remains capped by periodic USD strength and geopolitical headlines—favoring buying shallow pullbacks over chasing rallies ahead of key Australian data like March PMIs and February CPI.