CHF/JPY Extreme Oversold Territory May Signal Counter-Trend Squeeze

The yen has been gaining strength in recent times due to various factors such as hawkish BOJ repricing, record intervention by Japanese authorities, and unusually high support from the United States. The CHF/JPY pair has gone into 'waterfall mode', with its downside stretch reaching extreme levels not seen since 2018.

According to data going back to June 2018, there have been six instances where both the ATR 50 stretch indicator and RSI (14) fell below -2.5 and 30 respectively. While past performance is not indicative of future returns, the current setup is more extreme than any of these thresholds.

The average gain after 10 days was around 1.2%, while it reached 2.2% after 20 sessions. This suggests that stretches this extreme often arrive before counter-trend rallies. However, discussing long setups here goes against the prevailing trend, and it's not yet clear if a similar outcome will occur.

The key area to watch is the intersection of the long-running uptrend dating back to September 2021 with horizontal support around 188.80, a minor level that also acted as support in October last year.