CHF/JPY in Extreme Oversold Territory as Yen Gains Momentum

The CHF/JPY currency pair has entered 'waterfall mode' due to its extreme oversold territory on the downside. This is a rare occurrence for the pair, which has been respectful of known technical levels in the past.

The ATR 50 stretch and RSI (14) indicators are both at their most extreme readings since mid-2018, with six previous episodes showing a strong historical bias towards a rebound after such a setup. While backtesting suggests mixed results initially, further out shows stronger gains, with an average increase of around 1.2% after 10 days and 2.2% after 20.

The yen has been bolstered by 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, taking pricing for a 25bp hike from around 70% just over a week ago to slightly more than a full quarter-point move.