USD/JPY holds the key to unlock the next big dollar drop

<p>Alongside a hold at key resistance in AUD/USD <a href="https://www.forexlive.com/news/aussie-slightly-lower-after-china-gdp-data-earlier-20230717/" target="_blank" rel="follow">here</a>, USD/JPY is the other major pair that might act as a saving grace for the dollar. The greenback looked to be in dire straits after last week's rout but there is still one key technical level to watch despite the several breakdowns in <a href="https://www.forexlive.com/news/eurusd-stays-on-the-more-bullish-course-for-now-20230717/" target="_blank" rel="follow">EUR/USD</a>, <a href="https://www.forexlive.com/news/gbpusd-looks-to-build-on-last-weeks-breakout-move-20230717/" target="_blank" rel="follow">GBP/USD</a>, and <a href="https://www.forexlive.com/news/usdchf-retains-downside-bias-after-falling-through-the-floor-20230717/" target="_blank" rel="follow">USD/CHF</a>.</p><p>USD/JPY may have already fallen by roughly more than 700 pips at the lows this month but part of that owes to a sharper correction in the yen itself alongside BOJ speculation <a href="https://www.forexlive.com/news/the-fed-and-ecb-may-not-be-the-biggest-central-bank-risks-to-markets-this-month-20230717/" target="_blank" rel="follow">here</a>.</p><p>Add that to the dollar suffering last week and we came close to testing the confluence of the 100 (red line) and 200-day (blue line) moving averages on Friday. That saw buyers step in to defend the level with the dollar also taking a bit of a breather, rebounding to back above 138.00 as seen currently.</p><p>The key support region is seen at 137.01-03 and that pretty much holds the key in unlocking the next potential leg lower for the dollar. A break below that sets the pair up for a potentially quick drop towards 135.00 next.</p><p>On the flip side, buyers could also reflect the strength of their conviction by holding at the key support region above. That will be a good baseline to work with in order to try and work out a rebound at least. Things are certainly heating up and the technicals are coming into extreme focus as we look towards the Fed and BOJ policy decisions next week.</p><p>The overall mood today is not as inviting as we saw in the past week or so but it is still early and we also got US retail sales data as a potential trigger coming up tomorrow.</p>

This article was written by Justin Low at www.forexlive.com.