Trade Idea: EUR/JPY - Buy Again At 135.40

EUR/JPY – 136.15

Recent wave: wave 3 of C rally from 112.08 (21 Jan 2009) is possibly unfolding

Trend: Up

Our trading strategy: Buy again at 135.40, Target: 136.70, Stop-loss: 134.80

Despite rising to 136.90 yesterday in New York trading, the single currency met option-related selling interest just below 137.00 option barrier and has retreated since, suggesting further consolidation below there would take place ahead of the release of U.S. non-farm payrolls later today, however, we are keeping our view of impulsive waves unfolding from the low of 131.41, so we still expect downside to be limited to 135.00/04 support and upmove should resume later.

Looking at the hourly chart, we are retaining our count of a wave 3 extension (i.e. (i) (ii), (1) (2) count) with (i): 134.99, (ii): 133.37, (1): 135.95, (2): 134.35, hence, wave (3) is now unfolding and should head towards 136. 93 (100% projection of wave (1) 133.37 to 135.95 measuring from wave (2) 134.35), then towards 137.54, being 1.236 times projection of wave (1), however price should falter below the strong resistance at 138.58 (this level is also slightly above the 1.618 times projection of wave (1) at 138.52).

In the event price drops below minor support at 134.88, this woudl defer this bullish view and stronger correction cannot be ruled out but only break of support at 134.35 (wave 2) bottom would abort this bullish count and fall to 133.50 (61.8% Fibonacci retracement of 131.41 to 136.90).

To re-cap 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 137.42, then the 3-legged wave 2 from there could have ended at 126.98 with a short c, therefore wave 3 is now in progress to 140.00. On the downside, only a daily close below 131.41/47 would suggest the wave 2 correction is still taking place and fall to 130.00 cannot be ruled out but 126.98 support (18 May 2009) should limit downside and 124.38 support should remain intact.