* Chart, trade volume show less interest in selling euro
* Fed minutes suggest bond buying in 2013, buoy euro
* Market risk-averse on U.S. fiscal cliff, Middle East
* Aussie hits 10-day low, Canadian dollar at 3-month low
* Yen stabilises after big loss on election news
By Hideyuki Sano
TOKYO, Nov 15 The euro hovered above a two-month low on Thursday, having halted a five-day losing streak the previous day on profit-taking, helped by minutes from the U.S. Federal Reserve supporting more bond buying next year.
The euro has decoupled from other risk currencies, which were hit by fears that political gridlock could push the U.S. over its "fiscal cliff" and by an upsurge of violence in the Middle East.
The yen showed signs of stabilising after suffering its biggest losses against the dollar and the euro in two months on Wednesday after Japanese Prime Minister Yoshihiko Noda indicated he will call a snap election next month.
The euro traded at $1.2730, having rebounded from Tuesday's two-month low of $1.2661, where it found some technical support, including its 90-day average and the Ichimoku cloud bottom.
The euro had almost constantly declined since it peaked above $1.31 in mid-October, shedding 3.6 percent.
On the candlestick chart, however, the euro had a doji pattern on Tuesday, which could be seen as a bullish reversal sign after a bear trend because the pattern often appears when the market is indecisive about extending a trend.
"The euro/dollar's trading volume had been falling until Monday, suggesting investors' willingness to sell the euro had been declining. And then trade volume rose on Tuesday when a doji pattern appeared, suggesting that investors are turning eager to take profits in euro selling," Masafumi Yamamoto, chief FX strategist at Barclays in Tokyo, said in research note.
One possible resistance lies at the Ichimoku tenkan line at $1.2769, while levels around $1.2800-10 could set stronger resistance, hosting the Oct. 1 low as well as the 200-day average.
FED MEMBERS BACK BOND BUYS
The euro was also helped by minutes from the U.S. Federal Reserve's policy meeting, which showed a number of board members in October felt the Fed would need to step up asset purchases in 2013 to fill the gap when Operation Twist expires.
The minutes helped the dollar trim its gains against other risk currencies in late U.S. trade, although the overwhelming risk-off mood in financial markets supported the dollar against less liquid currencies.
The Australian dollar fell 0.2 percent in early Thursday trade to 10-day low of $1.0352, while the Canadian dollar fell to three-month low against the U.S. currency, which rose to C$1.0043.
The two currencies were hit by a fall on Wall Street to four-month lows after U.S. President Barack Obama set up a drawn-out fight over the fiscal cliff when he stuck to his pledge to raise taxes on the wealthy.
Adding to the selling pressure, Israel launched a major offensive against Palestinian militants in Gaza, killing the military commander of Hamas in an air strike and threatening an invasion of the enclave.
The dollar stood at 80.22 yen in early Asian trade, flat from late U.S. levels and not far from a six-month high of 80.68 yen hit earlier this month.
The dollar jumped on Wednesday after the news of a snap election in Japan fuelled speculation of more aggressive monetary easing by the Bank of Japan.
Japan's main opposition Liberal Democratic Party, which favors further monetary policy easing by the central bank, leads in opinion polls. LDP leader Shinzo Abe called on the central bank on Wednesday to print "unlimited yen" to achieve a new inflation target.
Still, market players said the news was unlikely to drive the dollar above the previous peak on its own.
"It's questionable whether unorthodox monetary policy will suddenly work miracles in beating deflation," said Taisuke Tanaka, chief FX strategist at Deutsche Bank in Tokyo.
Markets are also watching for an announcement of China's new leadership, expected at 0300 GMT. With Vice President Xi Jinping tipped to take over from outgoing President Hu Jintao as party chief, the focus is on the makeup of the Politburo Standing Committee - the innermost circle of power in China's authoritarian government.