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All the focus over the last few weeks has been on the EUR/USD cross as the EUR has strengthened on anticipation that the Eurozone may finally get their debt crisis in order and “risk on” currencies move to the forefront as “safe haven” currencies hit the sidelines.

Well we now can turn our focus on the USD/JPY as that cross has crossed the 79.00 resistance level taking the USD/JPY to an overnight high of 79.21.  Adding to the optimism that European leaders meeting today in Brussels will move towards solving the Euro crisis has been a strong move in Asian stock markets.  These two combined, along with expectations that the Bank of Japan will add to their stimulus package at their meeting on October 30 have weakened the JPY.

The BOJ is expected to release an update economic projection for 2012 and 2013 fiscal years, as well as forecasts for the year beginning April 2014.  It is expected that these projections will show a gain of less than 1%, which would mean the Bank of Japan failed to meet their 1% inflation goal.  This is the reason why analysts expect further easing from the BOJ.  At their last meeting, the BOJ did not ease further after adding to the stimulus package at the previous meeting.

Having reached the 79.20 area, the market now looks at resistance at 79.45 and then 79.85. There is strong resistance at the 80.00 level and that should hold through the end of the week.  Support for USD/JPY is at 78.95 and 78.60.

AUD gained overnight as the release of the China GDP numbers showed an increase of 7.4% in the three months that ended on September 30, from a year earlier and this gain was exactly what economists had predicted.  This news helped the AUD flirt with the 1.0400 area before falling back into the 1.0390’s.  The sentiment is still for a higher AUD and a break of 1.0410, should see a test of 1.0430.  China is Australia’s largest trading partner and good fortune in China usually means good fortune in Australia.

EUR had a relatively quiet trading range overnight and is mid-range at 1.3105 as I write these comments at 5:00 this morning.  The EU summit begins today, and while most will focus on whether Spain finally comes to the table and requests aid, there are other items on the table for today’s meeting in Brussels.  Not surprisingly, France and Germany appear ready to square off as France wants to get moving on the plan for an EU banking union, while Germany is concerned as usual with the costs related to enabling this plan.  Concern also remains over whether the Greek situation has finally come to completion.

Traders will watch closely today for “sound-bites” emerging from day 1 of the summit and react accordingly.  The EUR should remain well supported for the day unless there is some surprise that comes from the summit.  I would not expect that.  Resistance on the EUR remains at 1.3130, 1.3155 and 1.3170.  Support at 1.3080 should hold through the day.

Lastly on the currencies, the USD/CAD cross finally ducked below .9800, as housing start numbers from the US which were good boosted the currency.  Canada exports lumber to the US and increased housing starts adds to that export number.  USD/CAD is currently trading around .9776, just above the .9775 support.  The initial target would be a test of the .9745 level later today.