CHF/JPY Extends Downside Stretch, History Suggests Potential Rebound
The CHF/JPY currency pair has experienced a significant decline over the past week, reaching extreme oversold levels not seen since 2018. The ATR 50 stretch and RSI (14) indicators have both fallen below -2.5 and 30 respectively, with both signals pushing lower into the signal.
Historical data suggests that when the pair has reached such extreme levels in the past, it has often been followed by a rebound. In fact, out of six previous episodes where the ATR 50 stretch indicator fell below -2.5 and RSI (14) was below 30, five were followed by a higher price three and five trading days later, while all six were higher after 10 and 20 sessions.
The current setup is considered more extreme than any of the thresholds used in the backtest, underlining just how extreme this move has been. The yen has had significant hawkish repricing, record intervention, and unusually strong US support working in its favor, making it increasingly stretched.
Looking ahead, there are no major economic data releases due in either Japan or Switzerland between now and next Friday's BOJ interest rate decision, providing a relatively clear domestic calendar. However, the pair is still subject to significant macro headwinds from energy insecurity and deteriorating terms of trade from high energy prices.