CHF/JPY Falls as Sellers Take Charge

Market Overview

On Friday, CHF/JPY found itself under significant selling pressure as the bears intensified their push, driving the pair down from recent highs. The remarks by Martin Schlegel, President of the Swiss National Bank (SNB), underscored the importance of Switzerland’s flexible inflation targeting, allowing for effective responses to economic shocks. Schlegel also reaffirmed the SNB’s use of its primary tools—policy rate adjustments and currency interventions—to maintain price stability. He acknowledged that Switzerland’s economy has been significantly affected by the global economic slowdown, partly due to the appreciation of the Swiss franc as a safe-haven currency.

On the other side of the pair, Kazuo Ueda, President of the Bank of Japan (BoJ), highlighted his efforts to maintain yen stability during a financial meeting on Thursday, which lent some strength to the Japanese yen. However, Ueda also reiterated that the BoJ requires more data before making any definitive decisions at the upcoming December policy meeting. This cautious stance creates some uncertainty, but the yen remains supported by the BoJ’s vigilance over currency stability.

Technical Analysis

The daily chart of CHF/JPY reveals a bearish break of the recent ascending trendline. This breakdown indicates weakening bullish momentum and raises the likelihood of a potential bearish reversal. Additionally, the widening of Bollinger Bands suggests increased volatility, with the price trading in the lower half of the bands, signalling stronger seller control.

The pair has also broken below the recent support level at 173.388, moving towards the 127.2% Fibonacci extension at 172.651. Should this level fail to hold, sellers are likely to target the next support levels at 172.266 and 171.713. If downward momentum persists, the ultimate target could be the 200% Fibonacci extension at 170.678.

The Relative Strength Index (RSI) sits at 41.35, reflecting ongoing bearish pressure. While not yet in the oversold territory, the RSI clearly indicates increasing downside momentum. Meanwhile, the MACD oscillator remains in negative territory, with its signal line below the MACD line, further confirming the predominance of sellers and the strength of bearish momentum.

Alternative Scenario

For the bearish outlook to be invalidated, CHF/JPY must climb above the 61.8% Fibonacci resistance at 174.423. Additionally, a sustained move above the previous high at 176.098 would signal a potential return to an uptrend, suggesting that buyers have regained control.

Key Support and Resistance Levels

Resistance Levels:

• 176.098: Key level to watch for bullish reversal, breaking which could invalidate the bearish outlook.
• 174.423: Immediate resistance; a break above this level would challenge the current bearish bias.
• 173.388: Recent broken support now acting as resistance, critical for short-term direction.

Support Levels:

• 172.651: Current support at 127.2% Fibonacci extension; crucial for gauging further bearish strength.
• 172.266: Next downside target; support that may provide temporary relief.
• 171.713: Follow-up target; increased bearish momentum likely to see this level tested.
• 170.678: The ultimate downside objective at the 200% Fibonacci extension; represents a significant bearish target.

Key Events to Watch

In light of the recent SNB report showing a reduction in Swiss franc money supply in October, which further strengthened the franc, investors are now focused on the upcoming key European Purchasing Managers’ Index (PMI) releases scheduled for Friday. These PMI figures could exert further pressure on the European economy, enhancing the appeal of the Swiss franc as a safe-haven currency. The market will also closely watch developments from Japan, as BoJ’s data dependence could lead to rapid shifts in yen positioning.

Conclusion

CHF/JPY faces increasing bearish pressure as the break of the ascending trendline and downward momentum push the pair lower. Continued declines below 172.651 could see further downside targets being reached. Investors should keep an eye on upcoming PMI data and BoJ’s policy stances to assess the potential for any shifts in market dynamics.