Risk aversion continued through Wednesday's trading session; but momentum isn't spreading to all corners of the FX market. We still see a considerable amount of hesitation specifically with the US dollar - suggesting that the greenback is loosing a significantly portion of its clout as a safe haven currenc and that there are mitigating factors that we need to account for. One of the biggest distractions for the currency right now is the upcoming ECB rate decision. Cosnidering EURUSD is the most liquid currency pair in the market and the euro itself has held fast against most crosses due to the market's laser focus on yield expectations; we can see the process by which the dollar is held up.
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With this fundamental event risk in mind, we see the reasoning that I considering EURUSD one of the greatest trade opportunities in the market now. The pair has carved out a painfully tense range between 1.49 and 1.4750 over the past week at the extreme of an aggressive bull trend. Follow through is possible should the ECB's language impress; but a reversal has greater room to move. For best results, mix in disappointment with a nuetral ECB decision and ongoing risk aversion. Other euro setups that interest me are EURGBP if we could confirmed follow through beyond 0.8950; EURCHF should we see an ECB decision leverage risk aversion and break the frequented 1.2735 pivot support and EURCAD with a possible upper channel reversal (that technical boundary now spans all the way up to 1.4250).
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The other notable event risk for the upcoming session is the Bank of England rate decision. It is most likely that we see no change here; and it is up to the market to decide whether this is a relief or disappointment (more likely the latter). I'm still long GBPUSD from 1.6490 with a 100 point first target and initial stop in place. Then there is GBPAUD as it gains momentum on its remarkably consistent bear trend channel and GBPCAD which continues to trade along its channel. GBPCHF is a specific alternative scenario - should the pound find reason to rally, we could see a dramatic recovery due to the heavily biased market at record lows.
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Other pairs to keep an eye on: NZDJPY and NZDUSD have broken support along the lines of risk aversion. A good entry (move closer to 0.7965 and 64.45) and ongoing risk aversion would offer up a good potential trade. You'd need sharp moves from these pairs to avoid too much carry pain; and that is why we should be cautious when considering the AUDUSD's long overdue reversal. If it doesn't playout aggressively, it may never make meaningful progres. AUDCHF has further dropped below 0.9350 and would be a very attractive long for carry should risk trends level off.
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