USD/JPY falls below Ichimoku cloud following US PMI weakness and Powell speech

• The USD/JPY experienced a decrease of 0.52% in the North American session.
• The lower-than-expected November ISM manufacturing reading weighed on the US dollar.
• Fed Chair Jerome Powell acknowledges some easing in inflation, but emphasizes that core inflation remains high and monetary policy decisions will depend on data.

He USD/JPY It trims some of its Thursday gains on Friday, diving below the Ichimoku (Kumo) cloud early in the North American session. At the time of writing, the pair is trading at 147.35, recording losses of 0.58%.

USD/JPY falls on subdued ISM Manufacturing PMI, despite Powell’s neutral stance

The US dollar’s sudden weakness was sparked by a softer reading from the Institute for Supply Management (ISM) for November, which showed business activity remained subdued at 46.7, unchanged from the October reading, and thet consecutive month below 50, the expansion/contraction threshold, indicating that the manufacturing sector is underperforming. Estimates for the ISM stood at 47.6, while some subcomponents of the index, such as employment, showed that the labor market is easing. Regarding inflationary pressures, the price subcomponent jumped from 45.1 to 49.9, which could prevent Federal Reserve (Fed) officials from reducing monetary policy.

Meanwhile, Fed Chairman Jerome Powell made remarks. In prepared remarks, he acknowledged that inflation has softened, but that core inflation is too high. He added that he needs to see more progress in reducing inflation to his 2% target. He said rates are restrictive, but that it is “premature” to say monetary policy is restrictive enough. Chairman Powell said decisions would be made meeting by meeting.

On the Japanese front, the Jibun Bank Manufacturing PMI was 48.3 in contraction territory, above estimates but below October’s 48.7. Meanwhile, the Japanese labor market remains tight as the unemployment rate fell to 2.5% in October, data showed on Friday.

USD/JPY Price Analysis: Technical Outlook

The bearish trend is still in place, but the break of USD/JPY below the Kumo could accelerate the price decline towards the 146.00 area. A daily close below 147.60, the bottom of the cloud, could open the door to test 147.00. A break of this latter level would expose the September 11 daily low at 145.89, before prices plummet to the September 1 swing low at 144.43. On the other hand, if buyers keep exchange rates within the Kumo, that could pave the way for consolidation.