Trade Idea: EUR/JPY - Buy At 133.15

EUR/JPY - 134.26

Recent wave: Wave (ii) of iii is still unfolding but should hold above 132.70/80

Trend: Up

Our trading strategy: Buy at 133.15, Target: 135.00, Stop-loss: 132.60

The retreat from 136.90 turned out to be stronger than expected mainly due to cross-buying in Japanese yen on risk aversion after the release of below expectation U.S. job report, price dropped to as low as 133.58 earlier today before rebounding.

Looking at the hourly chart, as price has just retreated again from 134.80/82, we cannot rule out the possibility that the c leg from 136.90 may bring one more fall below 133.51 (61.8% Fibonacci retracement of 131.41 to 136.90) , however, 133.16 (50% projection of 136.90 to 133.58 measuring from 134.82) should limit euro’s downside and we expect the 61.8% projection at 132.77 to hold and bring another rebound later.

We have revised our preferred count on the hourly chart as: the wave (i) of larger degree wave iii has ended at 135.95 (instead of 134.99), then wave ii is unfolding with a: 134.35, irregular b: 136.90, the c leg of wave (ii) looks like would extend one more fall to 133.16 to end this wave (ii). A break above 134.82/85 resistance (also 38.2% Fibonacci retracement of 136.90 to 133.58) would suggest low has possibly been formed but a rise above 135.63 (61.8%) is needed to confirm this wave (ii) is over and bring retest of 136.90.  

If the currency pair drops below 132.77 projection level, stronger correction to 133.00/10 cannot be ruled out, however, renewed buying interest should emerge around 132.30/35 and price should stay well above support at 131.41.

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.