After last week plunging to its lowest level since February 2004 the market - which is closed today for the Australia Day holiday - will begin the week under pressure.
Brokers said a positive session on Wall Street tonight was essential for the Australian market to open solidly tomorrow.
The US market ended 0.56 per cent weaker on Friday, but could respond well this evening to plans by the Obama administration to tighten the nation's financial regulatory system.
The New York Times reported at the weekend that stricter federal rules for hedge funds, credit rating agencies and mortgage brokers, were all being considered by US officials.
"Our market really needs a circuit breaker and that could come from overseas," Macquarie Equities associate director Lucinda Chan told BusinessDaily.
"If we can get something positive from the Obama administration and we actually start to see he is giving money to the real economy to stop foreclosures, to help people with credit cards, then maybe it might help swing people around."
Investors have lost more than $800 billion on Australia's share market since its peak on November 2007, with the benchmark ASX 200 index down 10 per cent since the start of the year.
Last week a deluge of grim local and global news - including more evidence of a slowing Chinese economy - caused share prices to crumble.
December quarter inflation figures for Australia will be released this week, with economists forecasting the headline consumer price index - the key measure of inflation - will fall by 0.4 per cent to 3.6 per cent.
"If you do get the CPI falling by four tenths of one per cent as we expect, that will just further support speculation of the Reserve Bank (of Australia) cutting rates decisively in February," said Commsec chief economist Craig James.
Economists are tipping the RBA will cut interest rates by as much as 1 per cent to 3.25 per cent when it meets next week.
Former Reserve Bank governor Bernie Fraser last week predicted the cash rate may need to eventually go below 2 per cent to combat a looming recession.
Other key economic data out this week include the National Australia Bank's business conditions survey for December and private sector credit figures.
Company reporting season will gather pace this week with investment companies Amcil and Australian Foundation Investment Company unveiling earnings.
Consumer products group GUD Holdings and Alesco Corporation will also brief the market with results.
Mining giant BHP Billiton, West Australian Newspapers Alumina, and Tabcorp will begin a flood of earnings from big companies next week.
In the meantime, investors will be watching for profit downgrades after the Australian Securities Exchange last week formally reminded companies about their disclosure obligations.
"The earnings season is set to be one of the most disjointed that has been seen for some time," said Commsec's Mr James.
"Infrastructure, engineering and mining companies will report solid earnings but outlook statements will be more downbeat.
"Investment companies are likely to express hopes for better times ahead, highlighting high cash holdings.
"And retailers are likely to prove a mixed bag with firms focussed on staples doing best."
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