CHF/JPY Enters Rare 'Waterfall Mode' as Yen Strengthens

The CHF/JPY currency pair has entered 'waterfall mode', reaching extreme oversold levels on the downside. This rare occurrence is highlighted by the ATR 50 stretch and RSI (14) indicators, both of which have fallen to their most extreme readings since mid-2018.

Historical data shows that similar episodes have been followed by a rebound in five out of six cases, with average gains of around 1.2% after 10 days and 2.2% after 20. However, the current setup is more extreme than any threshold used in the backtest.

The yen has been strengthened by hawkish BOJ repricing, record intervention, and US support. The implied overnight rate for next Friday's BOJ meeting has risen to 1.24%, with markets now pricing around 3.7 hikes by July next year. US Treasury Secretary Scott Bessent has expressed confidence in policymakers' ability to strengthen the yen.

Looking ahead, there is little major economic data due in either Japan or Switzerland between now and next Friday's BOJ interest rate decision. However, US PPI out later today and CPI tomorrow could significantly shift the US rates outlook, impacting USD/JPY and broader yen volatility.