A surge in oil prices, driven by renewed US-Iran tensions and the effective closure of the Strait of Hormuz, has led to significant currency market movements, particularly impacting the Japanese Yen (JPY) and the Euro (EUR) [1][2][3]. The West Texas Intermediate (WTI) oil price climbed above $96 per barrel after US President Donald Trump rejected Iran's demands regarding the Strait of Hormuz and compensation for war damages, with no comments on Tehran's nuclear ambitions [1][3]. This geopolitical backdrop has created an unfavorable environment for the Japanese Yen, given Japan's heavy reliance on oil imports [1].
The USD/JPY pair traded 0.25% higher near 157.00 during the European session on Monday, as the Yen underperformed across the board amid concerns over Japan's economic outlook due to higher oil prices [1]. Technical analysis shows USD/JPY holding below the 20-day EMA at 158.02, with the earlier rising support trend line now at 156.34 acting as a structural floor. The Relative Strength Index (RSI) near 43 suggests only modest downside momentum [1]. Meanwhile, the US Dollar's strength is supported by expectations that rising oil prices will discourage the Federal Reserve from easing monetary conditions this year. Investors are now focusing on the upcoming US Consumer Price Index (CPI) data for April, set to be released on Tuesday [1].
Similarly, the EUR/JPY cross attracted fresh buyers after a bearish gap opening around 183.80, climbing back toward last week's swing high and aiming to build on gains above the 185.00 psychological mark amid broad JPY weakness [2]. However, speculation about potential intervention by Japanese authorities and the Bank of Japan's hawkish outlook may limit further downside for the Yen. The 200-period Simple Moving Average (SMA) at 185.40 is seen as key resistance, with a sustained break above this level needed to ease the current bearish bias. The RSI for EUR/JPY is near 62, and the MACD remains in positive territory, indicating constructive short-term momentum, though rallies remain vulnerable without a clear break above the 200-SMA [2].
In contrast, the Euro has weakened against the Canadian Dollar (CAD), with EUR/CAD trading around 1.6090 after three days of gains [3]. The CAD has benefited from higher oil prices, as Canada is the largest crude exporter to the US. The Euro's decline is attributed to rising energy costs, but a hawkish European Central Bank (ECB) outlook, with a 25-basis-point hike anticipated in June and three increases expected by the end of 2026, could provide future support for the Euro [3].
Currency heat maps from all sources confirm the JPY and EUR as the weakest against the CAD, reflecting the market's reaction to commodity price movements and geopolitical developments [1][2][3].
CONCLUSION
Geopolitical tensions and surging oil prices have pressured the Japanese Yen and Euro, while boosting the Canadian Dollar. The market is closely watching central bank policy signals and upcoming US inflation data for further direction. The current environment suggests heightened volatility and sensitivity to both geopolitical and monetary policy developments.