Dollar Drama Takes Nasty Turn

And, to justify the Fed's move from an economic growth standpoint, traders will be watching a hefty slug of U.S. economic data for September and August next week. The Fed claimed its unexpected cut was intended to "forestall" a serious economic downturn. So, as portfolio managers run their recession-outcome strategies, the key for the next few months is to assess how much spillover there's been from August's credit crunch into the broad economy.

"Right now the market thinks the Fed solved the problem," says Jeffrey Saut, chief investment strategist for Raymond James. "But I don't think you'll know for the next 60 to 90 days" if there really is a credit crunch beyond mortgage-backed securities and related derivatives dealers.

Traders' focus back on economic data comes on the heels of a full week for earnings reports by Wall Street brokerages, which presented a mixed bag of losses tied to seized up credit markets as well as some surprising pronouncements that the worst is over. Goldman Sachs(GS Quote) seemed to avert any crisis whatsoever, while Lehman Brothers(LEH Quote), Morgan Stanley(MS Quote) and Bear Stearns'(BSC Quote) earnings were less impressive.

The data week kicks off Tuesday with the Conference Board's consumer confidence reading for September, which is expected to fall slightly after August's sharp drop. Existing- and new-home sales figures for August are due to be reported on Tuesday and Thursday, respectively. Both are expected to decline and reveal little hope for stabilization in the housing market.