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The USD/JPY pair dominated the overnight FOREX market as the currency pair moved towards testing the 81.00 level.  The reason for the weakening of the JPY is the prospect of further easing from the Bank of Japan.  Current Prime Minister Noda stated yesterday that he would dissolve parliament which will force elections to be held.  The latest polls show the ruling Democratic Party of Japan could lose the election to the opposition Liberal Democratic Party. The leader of the LDP, Shinzo Abe, is said to be advocating more aggressive easing from the Bank of Japan.  Overnight he called for the BOJ to raise the inflation target to 3%, a much more aggressive target as the current 1% target has not been met.  Abe is also seeking to cut the benchmark interest rate to zero or possibly set a negative interest rate.

Reaction by the USD/JPY was swift, as the currency bolted through the 80.65 resistance level and moving to a high of 80.95.  Resistance above the 80.95 level appears at 81.10, followed by 81.30.  Support is at 80.50 and 80.25.

The EUR moved higher as well in early European trading as EU member Olli Rehn made comments that were supportive of the currency.  He stated that the EU is working on Greek aid sustainability and that future economic growth in the EU will be more sustainable. Adding to the positive EUR feelings were economic releases in Italy and Spain GDP, which came in above and in line of with consensus.  The market chose to ignore the easing of GDP number in France as well as the softening of the German economy from 0.5% to 0.4%, when a rise to 0.8% was forecast.  EUR short positions being liquidated helped the move higher.

Technical levels to watch in the EUR show resistance at 1.2775 and 1.2805, while support remains at 1.2720 and 1.2695.

As reported yesterday, the release of the FOMC October meeting minutes showed no surprises.  The main issues discussed at the meeting were implementing additional asset purchases when Operation Twist expires in December, as well as revising upward the economic forecasts in the near and medium term.

The Australian and Canadian Dollar reversed their movements lately as the AUD sold off, while the Canadian Dollar has moved back towards the parity level.

Overnight, Asian equity markets were lower as were European markets, following yesterday’s 185 point fall from the DOW.  DOW Futures are presently positive indicating a good start to the US equity markets this morning.

FED Chairman Ben Bernanke speaks today Georgia and market watchers will be looking to see if he gives any hints on further FED moves.

Look for the EUR to test the resistance level at 1.2775 this morning.

Further reading:  Did EUR/USD Find The Bottom? (Elliott Wave Analysis)