Forex Update - USD

The US dollar has stayed in a weaker 1.2928-1.2945 range against the EUR and a 116.61-116.82 range against the JPY this morning in Asia after weakening sharply overnight.
The weakness of the dollar since mid-October has caused EURSUSD to trade back to the top end of its H2 2006 range, catching many participants, including long-term USD bears like us, by surprise.
This is similar to the price action of H2 2002 when EURUSD traded in a 0.96-1.02 range for most of the second half, before breaking out to the topside in December 2002 and rallying all the way to 1.19 in March 2003.
We continue to see the EUR overshooting next year towards 1.40 before returning back to 1.30. But in the near term we want to see EURUSD close above 1.30 before concluding that the pair's six-month range has finally broken out to the top side.

With US markets closed for Thanksgiving, trading is likely to be subdued for the rest of the week. But next week we have ISM, weekly jobless claims and housing data. The claims numbers in particular should be watched closely. Yesterday's release showed another pick up in claims and if next week's number is similarly higher than expected, then financial markets will start to conclude that the weakness of the housing market is finally spilling over into the rest of the economy. This would cause the Fed to cut interest rates and for the USD to fall.