Will the stock market correct in 2014 and how will it likely affect the USD?

The short answer is yes I think it will. The longer answer of when and by how much I simply don't know. But there are a few things that seem pretty obvious to me and we should continue to keep an eye on them. Here is something I have noticed already in 2014 and I think is fairly predictable in the first half of this year.

• Every time the US 10 Year Treasury Yield goes close to or above 3% stock markets pull back sharply and the US Dollar surges.
• Every time the US 10 Year Treasury Yield goes down stock markets in the USA move higher and the US Dollar retraces.

Traditionally when global stock markets fall or correct themselves this usually benefits the US Dollar as it becomes a safety asset the market likes to buy in times of uncertainty. Traders simply convert the stocks they held into US Dollars or more to the point US Treasuries (US Bonds) and this in turn appreciates the US Dollar.

Right now we have stock markets globally that overall had a stellar 2013 and at some point the natural cyclical nature of the market is such that it will pull back. Provided the stock market has an orderly pull back and is not pulling back because of poor US economic growth and data figures I think one of the "trades of the year" could still be the emergence of the US Dollar again but this will be 100% dependent on continued economic prosperity, better jobs numbers and stronger growth and company earnings.

As I said a correction or pull back on the stock market is a natural and healthy thing and at some point this will happen and if it does over the coming few months check to see what % yield the US 10 Year Treasury is and if it’s close to or above 3%. If so the US Dollar will likely be gaining in value against the Aussie, Euro and Yen.

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