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Thursday Look Ahead: US Data, Forex Markets Take Centerstage

Weekly jobless claims and existing home sales are the key numbers to watch Thursday, but investors will keep their focus on the volatile foreign exchange market.

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Jobless claims, slightly lower than expected last week, are expected to total 453,000, when they are reported at 8:30 a.m. Existing home sales are reported at 10 a.m. and are expected to show August sales of 4.1 million. Leading economic indicators are also expected at 10 a.m.

Wednesday's markets were like a post game for the Fed's Tuesday statement, which opened the door to a new round of quantitative easing. The dollar skidded, Treasurys were bid higher, and stocks again fumbled, trading with little direction. Gold, meanwhile, jumped to yet another high as investors bought it both as a hedge against the falling dollar and on the prospect of an expanding Fed balance sheet.

The Dow fell 21 to 10,739, while the S&P was of 4 to 1134. Investors put money into defensive utilities, up 1 percent and materials, up 0.7 percent. The worst performing sector was financials, down 1.6 percent. Adobe's disappointing revenue forecastweighed on the market, and tech was also a weak performer, down 0.6 percent.

"In terms of stock prices, we've had a big move up here. It was probably a good place to stop and rest," said Steve Massocca of Wedbush Securities.

The yield on the 10-year slipped to 2.549 percent, and the 2-year was unchanged at an all-time low of 0.432 percent.

The dollar lost 1.2 percent against the euro, moving to a level of $1.339, and it was down 0.7 percent against the yen. Brown Brothers Harriman chief currency strategist Marc Chandler said the euro was also helped by this week's successful European debt offerings, in addition to the idea of more Fed easing.

"I would say the Fed statement yesterday just pushed the market in the direction it was already going," he said, noting the euro moved above its 200-day moving average Tuesday.

"The euro is still down for the year, about 6 percent...Before the Fed even met yesterday, the decline in U.S. rates relative to Germany, and the tone of the market makes me the most bullish I've been since May in the euro," Chandler said. He puts the next target for the euro at $1.38 to $1.40 within the next couple of weeks.

The yen is more difficult, he said. The Bank of Japan is expected to intervene if it continues to weaken. "I t think the market wants to test the resolve of the BOJ," he said.

Investors will also be watching events around the United Nations tomorrow. China Premier Wen Jiabao, who Wednesday called for better relations with U.S., meets with President Obama at 11 a.m. on the sidelines of the U.N. General Assembly.

Wen also told business leaders Wednesday that U.S. and Chinese business interests are "inextricably connected." His comments come as Congress and officials criticize China's currency policies, and as some U.S. lawmakers push for a bill that would penalize China if it doesn't do more to allow its currency to float.

Ironically, the House Ways and Means committee is discussing its bill as the yuan has been rising, gaining nearly 2 percent this month, Chandler said. "In some ways Wen and the Adminitration agree," he asid.

Obama is likely to have another currency discussion later in the day Thursday when he meets with Japanese Prime Minister Naoto Kan.

Another event being watched by energy markets, in particular, will be Iranian President Mahmoud Ahmadinejad's speech at the U.N. at 3 p.m. Oil finished Wednesday at $74.11 per barrel, down $0.26.

Bonds Bubble?

Investors continued to load up on Treasurys for a second day following the Fed's meeting. Many Fed watchers expect the Fed to announce a new quantitative easing program at its Nov. 3 meeting. The theory is the Fed would step up its purchases of Treasurys, putting pressure on rates.

CRT Capital Chief Treasury Strategist David Ader said the Fed will have to see continued weakness in economic data to make that move, and the market could stay in a range until it is decided either way. He said the current narrow range for the 10-year yield would be 2.45 to 2.7 percent. "We are sustaining (Tuesday's) gains and actually have extended them somewhat, over the course of today's non events. ..It's telling me the market is learning to think the risk here is that the data will be soft enough to force the Fed's hand in whatever time frame one could be looking at," said Ader.

What Else to Watch

Republicans are releasing their "Contract with America" at 1 p.m., as they attempt to present an alternative to Democratic policies heading into the mid-term election.

The Clinton Global Initiative is underway in New York.

Chicago Fed President Charlie Evans speaks at 10:40 a.m. at an annual banking conference, and former Fed Chairman Paul Volcker speaks there at 1 p.m.

Earnings include Rite Aidand Vail Resorts, ahead of the open.Nike reports after the bell.

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