Trade Idea: EUR/JPY - Hold Short Entered At 131.80

EUR/JPY – 131.13

Recent wave: wave (2) is still unfolding and may extend to 128.00

Trend: Near term down

Original strategy

Sold at 131.80, Target: 130.00, Stop: 132.50

New trading strategy

Hold short entered at 131.80, Target: 130.00, Stop: 131.80

Despite rebounding to 132.04 this morning, dollar's retreat from there as expected (we indicated upside would be limited to 132.07 (50% Fibonacci retracement of 134.29 to 129.84), this move has retained our bearish count and suggests the wave iv correction from 129.84 has possibly ended there and fall to 130.00 is likely. However, break of 129.84 is needed to signal recent decline has resumed towards 129.00 but reckon downside would be limited to 128.00 and chart support at 127.00 should remain intact.

Our preferred count is that: the upmove from 127.00 is treated as the wave 3 with wave (1) of 3 ended at 138.72 and wave (2) is re-labeled as an (A)-(B)-(C) move with (A) ended at 131.01, (B) ended at 135.49 and impulsive wave (C) is now in progress with minor wave iii ended at 129.84 and wave v of (C) should hold above 127.00.

In view of this, we are holding on to our short position for such fall. Only above 132.04/07 (previous resistance and 50% Fibonacci retracement of 134.29 to 129.84) would risk stronger correction to 132.59 (61.8% Fibonacci retracement of 134.29-129.84) before prospect of another decline. Looking ahead, if euro rises above 133.45/50, this would signal low has been formed, then test of resistance at 135.49 would follow, above there would signal that (C) leg of (2) has ended and bring wave (3) for gain to resistance at 136.09 and later 137.00, then 138.72.

Below 127.00 would abort our bullish count and signal the major correction from 139.26 (larger degree wave 2) is still taking place, then weakness towards 125.00 would follow.

Our larger degree count remains that wave 1 from 112.08 ended at 139.26 and wave 2 is a 3-legged move (as indicated in the attached chart) with a: 131.41, b: 136.90 and c: 127.00. Under this count, the wave 3 has commenced from 127.00 with wave (1) ended at 138.72.

On the bigger picture, we are treating the rally to 169.97 as end of wave A, then followed by a selloff in wave B (abc-x-abc) at 112.08. The wave C from there should unfolding as an impulse with wave 1 of C ended at 139.26, then the 3-legged wave 2 has ended at 127.00 and wave 3 should bring retest of 139.26, then towards 142.00.