Stock traders are talking currencies. Currency traders are talking stocks.
The weakening dollar has been one of the catalysts driving stocks and other risk assets higher, and it is a main focus of traders this week as they sort through a deluge of corporate earnings news and watch the dollar shrink to a 14-month low.
"The dollar obviously is the whole story," said Art Cashin, director of floor operations at UBS, as he looked ahead to Thursday's trading.
Weekly jobless claims, expected at 515,000, are released at 8:30 a.m. and are the big economic report of the day, being watched by traders in all markets. Leading economic indicators are released at 10 a.m.
There is also a flood of earnings from such names as AT&T, Bristol-Myers, 3M, Merck, McDonald's, UPS, Dow Chemical, EMC, Hershey, and Schering-Plough before the opening bell. American Express, Amazon.com and Burlington Northern are among companies reporting after Thursday's closing bell.
Stocks finished lower Wednesday after trading higher much of the day. Cashin said a late day move in the dollar and a downgrade of Wells Fargo by Rochdale analyst Dick Bove added to negative sentiment in the final hour. Traders also pointed to Wal-mart's comments about price cutting this holiday season, raising concerns about the pressure on already weakened rival retailers.
The Dow fell 92 points to 9949, and the S&P 500 slid 9 to 1081. Oil bubbled higher to $81.37, a gain of 2.8 percent, and gold gained $5.90 a troy ounce to $1063.70. Wheat rose 4.8 percent and corn climbed 3.7 percent.
The dollar, meanwhile, dipped about a half percent to $1.4998 per euro, but it had traded above the psychologically key $1.50 level during the day. The dollar index was at 75.09, down about 0.6 percent.
The Treasury market saw some selling pressure, and the yield on the 10-year climbed to 3.387 percent.
As the dollar continued to flounder Wednesday, strategists predicted it will stay under pressure.
Boris Schlossberg of GFT Forex said the next event the dollar was watching was China's GDP, industrial production and retail sales, expected overnight. He said the market is also watching the German IFO survey on business sentiment and European PMI, both released Friday.
"The high euro can trigger the one thing every European official fears the most -- high unemployment," said Schlossberg.
"I think (European officials) are going to get a lot more aggressive as they go forward. If we start to see a move toward 1.55, I think you're going to see a lot more phone calls to the Fed, saying 'get your act together,'" he said.
Many in the market believe the dollar will stay under pressure until the Fed is ready to raise rates months from now.
The Sideways Trade
The Vix, the Chicago Board of Options Exchange's volatility index, tumbled to a low of 20.10 but finished the day up 6 percent at 22.22.
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Some traders said the low in the Vix is a contrarian indicator, implying complacency in the stock market, but Dan Deming, who trades the Vix at the CBOE, says he thinks it will continue to fall.
"There's a sense that the Vix is going to continue to stay under pressure and break below 20 by November or early December. There's a lot of put buying going on right now," said Deming. " It's a little early but basically what it says is maybe the market is going to consolidate and trade sideways for awhile."
A sideways move is something that BlackRock vice chairman Bob Doll also mentioned Wednesday. Doll, who appeared on "Squawk Box," said it's possible the market could trade sideways for a while.
Doll said the stock market is "tired" and "..a little overbought. But remember these things can correct themselves by going sideways for awhile. they don't have to go down." .
Scott Redler, who follows the market's short-term technical moves, said he is concerned about Wednesday's late day reversal. He said it is an outside reversal since the S&P 500 crossed its recent high of 1101 but failed to hold above it. "That puts pressure on the market," said Redler, who is with T3Capital.com.
"As the day unraveled, you saw more signs it could be one of those 'rug pull' type of days," he said. He also said the move lower in the financials, which fell 1.9 percent, was significant because it was the group that has led the market higher since March.
"Every time we've had this type of move, it's led to a 4 to 4.5 percent retracement," he said. "If we get the 4.5 percent move, we should be testing the 50-day moving average at 1043."
Redler said he expects the market to first test the 20-day moving average at 1069, but if stocks continue to weaken, the next level would be 1043, which held the last time the 50-day was challenged.
What Else to Watch
The Boston Fed holds its annual Cape Cod economic conference. Boston Fed President Eric Rosengren presents a paper on financial stability and the Fed. New York Fed President William Dudley moderates a panel on monetary instruments at the conference.
Microsoft's Windows 7 hits stores Thursday.
The Congressional Oversight Panel holds a 10 a.m. hearing on the oversight of TARP.
The Federal Communications Commission holds a 10 a.m. hearing on net neutrality.