The positive side of the weak dollar story should show up this week, as a parade of multinationals report earnings.
Johnson and Johnson and Intel are the big names Tuesday, and they are followed by Abbott Labs, J.P. Morgan, Citigroup, IBM, Google, Goldman Sachsand General Electriclater in the week.
The dollar should help some of these companies, just as it is helping the likes of Black and Decker. That company Monday increased its third quarter forecast, citing currency benefits as one reason. Black and Decker is also getting a lift from cost cuts, lower prices for parts and a lower tax rate.
The impact of currency on S&P 500 companies is not trivial. In 2008, 48 percent of all revenues were generated outside the U.S., up from 46 percent in 2007 and 44 percent in 2006.
Third quarter earnings for the S&P 500 are expected to be down 24.6 percent from last year. In the second quarter, profits were down more than 27 percent. The decline in sales, meanwhile, is expected to be down 7 percent, compared to a decline of 19 percent in the second quarter, according to Standard and Poor's.
"Currency will be a big positive impact. The lower dollar has many concerns to it, but it has a benefit to multinationals, and I think that is a big expectation in terms of the quarter," said Chris Sheldon, director of investment strategy at BNY Mellon Wealth management. Sheldon believes positive earnings surprises will be one factor that could keep the market moving higher for now.
"It appears the estimate for the third quarter earnings compared to second quarter are relatively on par. Given there has been some improvement in the tone of the economy and you have this currency affect..you have some upside," he said.
Sheldon said he will be watching for comment from companies on 2010. "As you get into 2010, we need to see more top line growth," he said.
Johnson and Johnson is expected to report profits of $1.13 per share on revenues of $15.22 billion. Deustche Bank pharmaceutical analyst Barbara Ryan said while she does not cover Johnson and Johnson, it could be an early indicator for the group, as the first major drug company to report. Ryan said she expects the dollar impact for the industry to be negative for the quarter but the greenback's decline may contribute to some upside earnings surprises.
"The way I would characterize it is it's going to be substantially less negative than in the previous quarters. Based on the year-over-year change, it's still going to be a negative but in the fourth quarter, it's going to be positive," she said. Ryan said some overseas operations close their books earlier than others, and may not see the full benefit from the dollar's third quarter decline.
Other major drug companies report next week. "Like past quarters, I think they're mostly going to beat expectations and whether people reward them or not for that is a function of what happens elsewhere, i.e.. signs about the outlook for the recovery," she said.
The dollar slipped again Monday, as stocks and commodities rose. The Dow closed modestly higher, up 20 to 9885, after hitting a new intraday high for the year. The Dow closed at its highest level since Oct. 6, 2008. The S&P 500, meanwhile, was up 4 at 1076, its highest close since Oct. 3, 2008.
The dollar fell by a half percent against the euro to $1.4781 per euro, and oil, lifted by the weak dollar, rose 2 percent to $73.27 per barrel.
Boris Schlossberg of GFT Forex said if there's good news on the consumer front, the dollar could start to gain some traction. This week's data on the consumer includes Wednesday's retail sales for September and weekly jobless claims on Thursday. Consumer sentiment will be important on Friday. Good news on the consumer and jobs front would signal markets that the Fed could start to reverse its current policies.
What Else to Watch
The Fed's current policy stance is why the dollar is not likely to rebound any time soon, says Adam Boyton, Deutsche Bank currency strategist. "It's loose policy on both the fiscal and monetary sense, and no sign really that the Fed is contemplating taking any of that monetary stimulus back any time soon," said Boyton.
The dollar index hit a low in March, 2008 of 70.70. Its low Monday was 76.02, but it had hit a year high of 89.62 as it benefited from a flight to quality play in the fourth quarter and first quarter of this year. "I think now we're coming back to the fundamentals we used to look at, which are relative interest rate differentials, and the new one is relative fiscal policy," he said.
Boyton said based on Deutsche Bank forecasts, the European Central bank should begin tightening in the third quarter of 2010, but the Fed is not expected to tighten until 2011, a scenario that would keep the dollar under pressure. Boyton said the dollar is also impacted by the move of central banks to build euro reserves, and also by the talk challenging the dollar's status as reserve currency.
He said he thinks the latter discussion is not likely to end up in any change for the dollar. "There isn't' really an alternative to the dollar. These shifts take a lot of time, and they need a clear alternative," he said, adding he sees no alternative. "The other thing about a reserve currency is they need a strong sovereign behind it."
What Else to Watch
The NFIB small business survey for September is released at 7:30 a.m. Tuesday, and the federal budget release is at 2 p.m. At 1:45 p.m., Fed Vice Chairman Donald Kohn speaks at the National Association of Business Economists meeting in St. Louis, Mo. New York Fed President William Dudley speaks at 1:15 p.m. at the Institute of International Bankers.
Other companies reporting earnings include CSX and Altera, after the closing bell.
The Senate Finance Committee is expected to vote on its health care bill Tuesday.
More on CNBC.com: