CHF/JPY Enters Rare 'Waterfall Mode' Amidst Hawkish BOJ Repricing

The CHF/JPY currency pair has entered 'waterfall mode', experiencing extreme oversold territory on the downside. This rare occurrence, where the pair disregards known technical levels, has pushed the Swissy-yen into a state of significant weakness.

Using daily data from June 2018, six completed episodes have been identified where both the ATR 50 stretch indicator and RSI (14) fell below -2.5 and 30 respectively. While initial results were mixed, further analysis suggests a historical bias towards a rebound, with five of the six episodes followed by higher prices three to five trading days later.

From a fundamental perspective, the yen has benefited from hawkish BOJ repricing, record intervention, and unusually strong US support. The implied overnight rate for next Friday's BOJ meeting has risen from 1.15% at the start of September to 1.24% today, with markets pricing around 3.7 hikes by July next year.

However, the yen still faces macro headwinds from energy insecurity and deteriorating terms of trade due to high energy prices. The upcoming US inflation data release could spark significant volatility in the pair.