CHF/JPY Waterfall Mode Sparks Rebound Fears
The CHF/JPY currency pair has entered a rare 'waterfall mode' over the past week, reaching extreme oversold territory on the downside. This move is considered extreme because it's pushed both the ATR 50 stretch and RSI (14) indicators to their most extreme readings since mid-2018.
Historical data shows that in similar situations, there was a strong bias towards a rebound. Out of six completed episodes where the ATR 50 stretch fell beneath -2.5 and RSI (14) was below 30, five resulted in higher prices three and five trading days later, while all six were higher after 10 and 20 sessions.
However, the current setup is even more extreme than any of those episodes, indicating that a rebound could be imminent. The hawkish repricing of Japan's interest rate outlook has strengthened the yen, with implied overnight rates rising to 1.24% from 1.15% at the start of September.
US Treasury Secretary Scott Bessent has expressed confidence in policymakers' ability to strengthen the yen, saying 'I am the house now.' Japanese authorities have also intervened heavily, buying ¥15.39 trillion worth of yen between late July and late August, the largest amount on record.