Updated from March 31

To an unusual extent, currencies are the linchpin on which financial markets will most likely turn in the coming weeks. The keys to foreign exchange rates, in turn, are three major events in coming days: an ECB decision on rates, a big-business sentiment survey in Japan, and the U.S. employment report for March. Any one could have serious ramifications for the greenback; collectively, they almost assuredly will.

Forecasting is always dicey, but one potential outcome of the "big three" events features near-term strength in the dollar, probably leading to corresponding strength in equities and weakness in commodity prices.

ECB Meet & Greet: The European Central Bank meets Thursday. Dovish comments from ECB officials, including President Jean-Claude Trichet, in the wake of weak German business confidence have raised expectations for a rate cut. Be it by 25 or 50 basis points, a European ease would reduce the current 100-basis-point yield differential between the ECB's key lending rate and the Federal Reserve's fed funds rate.

That, in turn, would likely put downward pressure on the euro vs. the dollar, which boasts a stronger domestic economic backdrop. In anticipation of a potential ECB rate cute, the euro has fallen from its Feb. 18 high of $1.2826 to $1.2172 late Tuesday.

In recent days, expectations for an ECB rate cut have declined. But at a minimum, Europe's central bankers will "try to keep expectations alive for an eventual rate cut" in their statements, which "would keep the euro under pressure," predicts Ashraf Laidi, chief currency analyst at MG Financial Group.

On Thursday, the ECB did leave rates unchanged. More surprisingly, ECB President Trichet downplayed hopes of an ease anytime soon. "On balance, there is currently no evidence challenging the assessment of continued, though modest, real GDP growth over the short term," he said at a news conference. The euro was recently up slightly to $1.2342 vs. $1.2303 late Wednesday, but stronger-than-expected U.S. economic data mitigated the euro's rise.

Japan's Tankan Survey: This key sentiment index for big Japanese manufacturers is also due Thursday. A similar survey of small Japanese businesses released Tuesday was stronger than expected, boosting hopes for an upbeat March Tankan survey.

If the Tankan survey is strong, traders will most likely rush to buy yen and sell dollars. The greenback has already fallen about 6.5% vs. the yen since early March amid speculation the Bank of Japan will reduce intervention aimed at helping the dollar; overnight Tuesday, the dollar tumbled below 105 yen, its lowest level since June 2000.

Thursday's Tankan survey was indeed stronger than expected, rising to its highest level since 1997; recently the dollar was trading at 103.77 yen, down from 104.36 late Wednesday.

The BOJ may reduce its dollar-buying, but demand for foreign assets remains high among Japanese pension funds and other institutions, said David Greenwald, a partner at Newport Beach, Calif.-based Scalene Partners, a currency-focused hedge fund. "The story of April dollar/yen will be huge outflows out of Japan into foreign markets, which is bullish for the dollar," Greenwald forecast.

Noting Wednesday is the end of Japan's fiscal year, Greenwald envisioned a scenario where the Tankan data are bullish for yen, but price action doesn't follow through. Such an outcome would "confirm the driver of dollar/yen is asset allocation and not macroeconomics," he said. As noted above, the strong Tankan was indeed prompting a strong yen rally midday Thursday.

Friday's Employment Report: This is the third, and perhaps most crucial, event this week for the dollar, and certainly the most important to accompanying movements in equities and Treasuries.

As detailed here , economists have woefully overestimated the pace of employment growth in recent months. For March, consensus estimates are for nonfarm payrolls of 123,000 with the unemployment rate unchanged at 5.6%.

Although 123,000 isn't dramatically lower than consensus in recent months, only five of the more than 70 economists surveyed by Bloomberg are forecasting payroll expansion above 150,000, noted Jim Bianco, president of Bianco Research in Chicago.

"There's definitely been a downshifting of expectations among the economic community," Bianco said. From a contrarian perspective, that suggests March could be the month when the big payroll payoff finally arrives, he said. A drop in jobless claims benefits reported Thursday further fueled such expectations.

A stronger-than-expected employment report would boost the dollar, most certainly vs. the euro, as it would confirm the relative strength of the U.S. economy. The jobless claims data and a stronger-than-expected ISM Manufacturing Survey did help ameliorate some of the sting of the ECB's decision to stand pat.

"I can imagine a scenario where the Tankan is better than expected but dollar/yen goes up, the ECB cuts, and U.S. employment is much better than expected, making the dollar much stronger across the board," Greenwald said.

Dollar Echo

Among other asset classes, a stronger dollar would most directly affect commodities.

Crude prices rallied Tuesday amid squabbling among OPEC members over planned production cuts. If the cuts are approved, a sell-the-news reaction might emerge. If they're postponed (or canceled), that would be a negative surprise for the myriad speculators betting on higher oil prices. The cuts were approved Wednesday morning; crude futures dipped Wednesday and were recently down 1.1% Thursday.

From a technical perspective, the high $30s/low $40s have historically represented "spike highs" for crude, noted Rick Bensignor, chief technical analyst at Morgan Stanley. "The long-term picture is bullish but it would not surprise me if oil pulled back into the low $30s," he said, indicating crude's near-term technical picture is consistent with a rising dollar. (Still, Bensignor declined to make a specific short-term forecast, admitting OPEC's stranglehold on oil "overrides the importance of technicals.")

As with oil and most other commodities, gold is priced in dollars and thus susceptible to a pullback if the greenback rallies. Also like crude, the yellow metal has a bullish long-term chart but is testing its recent highs and "should meet some resistance in the $430 neighborhood," Bensignor said. Gold was approaching those levels Thursday, recently up 0.2% to $429 per ounce. Meanwhile, silver was at a 16-year peak, above $8.

Notably, while oil and gold are testing recent highs, the dollar is testing recent lows vs. the yen; as a wise man once said: "Sell when others are greedy, buy when they are fearful."

Finally, there's the stock market. A stronger-than-expected employment report is likely to spur a similarly bullish reaction in equities as the dollar, with corresponding weakness in Treasuries. However, the weak dollar contributed 2% to 3% of the 8% corporate sales growth last year and had a "much greater impact on profit growth," estimated Vadim Zlotnikov, chief investment strategist at Sanford C. Bernstein. "This tailwind may have already peaked."

Therefore, any pronounced strength in the dollar would ultimately put downward pressure on earnings, and thus shares. But near term, the dollar and stocks could very well rally in tandem.

Last week I examined why shares seemed primed to rally in concert with the forthcoming first-quarter earnings reports. But we're still not quite into earnings season and there could be another dip -- perhaps on a weaker-than-expected jobs report, or in reaction to new rules regarding expensing of options -- before the rally resumes.

On a related note, John Bollinger of Bollinger Capital suggested to me on March 11 the major averages were starting to form what he thought would turn out to be a "W" formation. Recent action has created the first half of that pattern, meaning a near-term dip prior to a more strenuous rally needs to occur to form the second half of the "W".

Clearly, there are risks to all this. Scalene Partners, for one, will be "remarkably flat" heading into each of the three aforementioned events, Greenwald said. "It's not worth the asymmetrical event risk to run a big position; we'll try to stay lean and react to price action after."

That's good advice for individual investors, too. The point here is not to make a trading call, but to outline a possible map to navigate what are likely to be some very volatile days ahead.
Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to atask@thestreet.com.