This post is meant to assess the wave patterns prior to the news with key levels in focus.
The bigger picture pattern we've been tracking is a W-X-Y dating back to 2011. This is a big pattern to the downside that doesn't appear finished yet.
According to the wave labels above, it appears we are in circle 'v' of red C of (Y).
Heading into the end of year holidays, short traders closed out their positions and we saw a small build up in longs. This shifted the FXCMSSI reading into positive territory. The current reading sits at +1.14 which isn't an extreme reading. However, when the reading was positive for most of the 2000 pip downtrend since the summer of 2014, this may set the table for another down trend. Keep track of live FXCMSSI here.
As the labels are placed above, we are looking to short any strength coming from the pair with a break above the blue to cause for a pause. I wouldn't be surprised to see the pair push up into the .66 handle and perhaps the double dose of rate announcements will do it.
Conservative risk on the trade can be placed above 6890.
If prices do push above there, it may signal that wave (Y) finished in August 2015 and that another (X) leg is grinding higher.
Good luck and happy trading!
This would be a W-X-Y to make up a wave 2.
FXCMSSI has been slightly favor further gains as 57% of retail traders are currently short. Check out the live FXCMSSI feed above during the jobs report this morning for a clue about direction.
The size of iv is concerning as you point out. Notice how the size of proposed iv is about the same as red 'B'? Perhaps it is more of an X wave...or the 'B' from Feb-Mar 2015 is actually a 2. That would make this a 4 to match up to it.
That is one of the benefits of EW in that if there are multiple possibilities pointing in the same direction, it establishes a bias to trade from.