Trade Idea: EUR/JPY - Sell At 131.20

Recent wave: Wave 2 is still unfolding and c leg of 2 would extend to 130.00.

Trend: Near term down

Original strategy : Sell at 132.55, Target: 130.80, Stop-loss: 133.20

Our trading strategy: Sell at 131.20, Target: 129.50, Stop-loss: 131.80

Although the single currency rebounded after falling sharply to 127.00 yesterday, according to our bearish count on the hourly chart, this is still treated as the wave (4) and should be limited to 131.28 (61.8% Fibonacci retracement of 133.93 to 127.00 and as long as resistance at 131.73 (wave (1) trough) holds, our bearish view remains for the wave (3) to take place. Break of 128.00/10 support would confirm this view and bring retest of wave (3) bottom of 127.00.

In view of this, we still prefer to sell euro on further rise but one must book profit on retreat as break of 128.00 is needed to confirm wave (4) correction is over.

To recap our preferred count: the wave 2 correction is still taking place which is now labeled as a: 124.39, wave b is a 3-legged irregular correction ended at 139.26, wave c is in progress with i: 131.41, ii: 136.90 and wave iii is unfolding with minor wave (i) ended at 133.58 and wave (ii) at 134.83. The minor wave (iii) itself is also an extension with (1): 131.73, (2): 133.93 and wave (3): 127.00. If price rises above resistance at 131.73 (wave (1) bottom), this would signal low has been formed, then stronger rebound to 133.11 (61.8% Fibonacci retracement of 136.90 to 127.00) would follow but resistance at 133.93 should still hold.

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 137.42, then the 3-legged wave 2 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 hold.